Consider the two (excess return) index-model regression results for stock A and B. The risk-free rate over the period was 6%, and the markets average return was 14%. Performance is measured using an index model regression on excess returns. 21 Stock A Stock B Index model regression estimates 1% + 1.2 (r M-r f ) 2% + .8(r M r f ) R-square .576 .436 Residual stdev, e 10.3% 19.1% Stdev of excess returns 21.6% 24.9% a. Calculate the following statistics for each stock: i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure

Ch 24 #9 22 a. Stock A Stock B (i) Alpha = regression intercept ???% ???% (ii) Information ratio = ??? ??? (e ) P P (iii) *Sharpe measure = ??? ??? P f P r r- * To compute the Sharpe measure, note that for each stock, (r P r f ) can be computed from the right-hand side of the regression equation, using the assumed parameters r M = 14% and r f = 6%. The standard deviation of each stocks returns is given in the problem. (iv) Treynor measure = ??? ??? P f P r r- The beta to use for the Treynor measure is the slope coefficient of the regression equation presented in the problem.

Ch 24 #9 23