Estimate for the risk premium for the market portfolio

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Reference no: EM13271941

You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return, standard deviation, and CAPM beta estimates for these two managers over the past five years:

Portfolio Actual Avg. Return Standard Deviation Beta
Manger Y 10.20% 12.00% 1.20
Manger Z 8.80% 9.90% 0.80

Additionally, your estimate for the risk premium for the market portfolio is 5.00 percent and the risk-free rate is currently 4.50 percent.

Calculate each fund manager's average "alpha" over the five-year holding period. Show graphically where these alpha statistics would plot on the security market line (SML)

Reference no: EM13271941

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