Current dividend yields and expected capital gains

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Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12.5% and 14.7%, respectively. The beta of A is .7, while that of B is 1.3. The T-bill rate is currently 7%, while the expected rate of return of the S&P 500 index is 14%. The standard deviation of portfolio A is 17% annually, while that of B is 38%, and that of the index is 27%.

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. Round your answers to 1 decimal place.)

b. If instead you could invest only in bills and one of these portfolios, calculate the sharpe measure for Portfolios A and B. (Round your answers to 2 decimal places.)

Reference no: EM13956170

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