Question: A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard

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

Micro Forecasts

Asset	Expected Return (%)	Beta	Residual Standard Deviation (%)
Stock A	20	1.50	60
Stock B	18	2.00	40

Macro Forecasts

Asset	Expected Return (%)	Standard Deviation (%)
T-bills	5	0
Passive Equity Portfolio (m)	16	25

1A. Calculate the expected alpha values for stock A and Stock B.

Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the above two stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150%.

1B. What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p) and what's the M2 of the optimal portfolio?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 22 1.00 40...

4. 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 20 1.3...

A portfolio manager summarizes the input from the macro and micro forecasts in the following ta ble: MICRO FORECASTS Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 20 1.3 58...

Please help with Part B A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation...

Calculate expected excess for Stock A and Stock B. Calculate expected alpha values for Stock A and Stock B. Calculate expected residual vatiances for Stock A and Stock B. thumbs up will be given if...

Question 8 3 pts A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (96...

Calculate expected residual variances for stocks A and B. A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%)...

Calculate expected alpha values for Stocks A and B. A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta...

Find the Z parameters of the network in figure by considering the circuit to be a series interconnection of two two-port networks as shown in figure. 3120 Na N3 6n

McNally Inc.s sells 25% of its goods for cash and 75% on credit. The companys Accounts Receivable collection pattern is 70% in the month of sale, 20% in the month after sale, and 10% in the second...

EXERCISE 7-5. Incremental Analysis Each year, Knight Motors surveys 6,000 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering...

In a linear program, P is the number of plates to produce and M is the number of mugs to produce. If the labor availability constraint states 3 P + 4 M 4 5 ( hours ) , which of the following...

11.5 Describe the grievance procedure in a union environment.

11.6 Explain union decertification.

Larry Browning, Alf Saetre, Keri Stephens, and Jan-Oddvar Sornes (2008) present stories of the ways personal and social media facilitate and hinder work in a range of organizations. Their book shows...