A portfolio manager summarizes the input from the macro and micro forecasters in the following table:

Micro Forecasts

Asset Expected Return (%) Beta Residual Standard

Deviation (%)

Stock A 30 1.6 42

Stock B 23 2.1 63

Stock C 22 0.9 52

Stock D 17 1.0 47

Macro Forecasts

Asset Expected Return (%) Standard Deviation (%)

T-bills 8 0

Passive equity portfolio 21 26

a. Calculate expected excess returns, alpha values, and residual variances for these stocks. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round "Alpha values" to 1 decimal place.)

b. Compute the proportion in the active portfolio and the passive index. (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

c. What is the Sharpe ratio for the optimal portfolio? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

d. By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

e. What should be the exact makeup of the complete portfolio (including the risk-free asset) for an investor with a coefficient of risk aversion of 3.1? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Expected Return Standard Deviation (%) Asset T-bills Passive equity portfolio 8 21 26 8. Calculate expected excess returns, alpha values, and residual variances for these stocks (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round "Alpho values" to 1 decimal place) Answer is complete but not entirely correct. Excess returns Alpha values Residual variances Stock 22 12% 1.764 Stock B 15 (123) 3.969 Stock 14 230S 2704 Stock D 193 1401 2209