Use the three portfolios shown below to answer questions 5-8 in Part 2. Portfolio 1 Security...

 

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Use the three portfolios shown below to answer questions 5-8 in Part 2. Portfolio 1 Security Amount Invested Expected Return Beta Security A $ 4,000 9% .80 Security B $ 5,000 12% 1.15 Security C $ 12,000 14% .95 Security D $ 8,000 15% 1.23 Portfolio 2 Security Amount Invested Expected Return Beta Security A $ 3,000 16% 1.22 Security B $ 11,000 13% 1.54 Security C $ 9,000 8% .87 Security D $ 6,000 11% .81 Portfolio 3 Security Amount Invested Expected Return Beta Security A $15,000 Security B $12,000 Security C $ 3,000 Security D $ 2,000 10% 1.72 9% .81 12% .72 15% 1.54 5. Based on beta, which portfolio has the highest level of systematic risk? Show your work. 6. If the risk-free rate is 5.5 percent, which of these portfolios has the highest reward-to-risk ratio? Show your work. 7. Suppose that the risk-free rate is 5.5 percent, the return over three years for each portfolio matches its expected return, and the portfolios have 3-year annual return standard deviations as follows: 22% Portfolio 1 Portfolio 2 26% Portfolio 3 18% If you were restricted to selecting one of the three portfolios to invest all your money in, which should you choose based on that portfolio having the best ratio of excess return per unit of total risk as measured by its Sharpe ratio? 8. Suppose that the actual returns for Portfolios 1, 2, and 3 were as follows: Portfolio 1 11.3 Portfolio 2 12.5 Portfolio 3 9.4 Also, assume that the risk-free rate was 5.5 percent and the average return on the market portfolio was 8 percent. a. Which of the three portfolios has the highest Jensen's alpha? Show your work. b. Which has the highest Treynor ratio? Show your work. Use the three portfolios shown below to answer questions 5-8 in Part 2. Portfolio 1 Security Amount Invested Expected Return Beta Security A $ 4,000 9% .80 Security B $ 5,000 12% 1.15 Security C $ 12,000 14% .95 Security D $ 8,000 15% 1.23 Portfolio 2 Security Amount Invested Expected Return Beta Security A $ 3,000 16% 1.22 Security B $ 11,000 13% 1.54 Security C $ 9,000 8% .87 Security D $ 6,000 11% .81 Portfolio 3 Security Amount Invested Expected Return Beta Security A $15,000 Security B $12,000 Security C $ 3,000 Security D $ 2,000 10% 1.72 9% .81 12% .72 15% 1.54 5. Based on beta, which portfolio has the highest level of systematic risk? Show your work. 6. If the risk-free rate is 5.5 percent, which of these portfolios has the highest reward-to-risk ratio? Show your work. 7. Suppose that the risk-free rate is 5.5 percent, the return over three years for each portfolio matches its expected return, and the portfolios have 3-year annual return standard deviations as follows: 22% Portfolio 1 Portfolio 2 26% Portfolio 3 18% If you were restricted to selecting one of the three portfolios to invest all your money in, which should you choose based on that portfolio having the best ratio of excess return per unit of total risk as measured by its Sharpe ratio? 8. Suppose that the actual returns for Portfolios 1, 2, and 3 were as follows: Portfolio 1 11.3 Portfolio 2 12.5 Portfolio 3 9.4 Also, assume that the risk-free rate was 5.5 percent and the average return on the market portfolio was 8 percent. a. Which of the three portfolios has the highest Jensen's alpha? Show your work. b. Which has the highest Treynor ratio? Show your work.

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Answer 5 To determine which portfolio has the highest level of systematic risk based on beta we need ... View the full answer