Question: Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 7.9% and 8.1%, respectively. The
| Based on current dividend yields and expected capital gains, the expected rates of return on portfolios Aand B are 7.9% and 8.1%, respectively. The beta of A is .8, while that of B is 1.4. The T-bill rate is currently 4%, while the expected rate of return of the S&P 500 index is 8%. The standard deviation of portfolio A is 30% annually, while that of B is 51%, and that of the index is 40%.
Think about what are the appropriate performance measures to use in question a and b, and why. |
| a. | If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B?(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 1 decimal place.) | |
| Alpha | ||
| Portfolio A | % | |
| Portfolio B | % | |
| b-1. | If instead you could invest only in bills and one of these portfolios, calculate the sharpe measure for Portfolios A and B. (Enter your answer as a decimal rounded to 2 decimal places.) |
| Sharpe Measure | ||
| Portfolio A | ||
| Portfolio B | ||
| b-2. | In scenario b, which portfolio would you choose? | |||||
| ||||||
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
Study Help