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Macro and micro forecasters

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Reference no: EM132499067

A portfolio manager summarizes the input from the macro and micro forecasters in the following tables:

Micro Forecasts

Asset Expected return (%) Beta Residual Standard Deviation (%)

Stock A 23 1.8 57

Stock B 20 2.0 71

Stock C 19 1.1 62

Stock D 15 1.3 51

Macro Forecasts

Expected Return Standard Deviation

Asset (%) (%)

T-Bills 12 0

Passive equity portfolio 18 30

a. Calculate expected excess returns, alpha values, and residual variances for these stocks (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round "Alpha values to 1 decimal place).

Stock A Stock B Stock C Stock D

Excess Returns _?____ % _?___ % ___?__ % __?___ %

Alpha Values _?____ % __?___ % ___?__ % ___?__ %

Residual variances ___ ___?_____ ____ ?______ ____ _?______ _?___

B. Compute the proportion in the optimal risky portfolio (do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)

Proportion _______________

C. What is the Sharpe ratio for the optimal portfolio? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

D. By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

Active Portfolio ___________

e. What should be the exact makeup of the complete portfolio (including the risk-free asset) for an investor with a coefficient of risk aversion of 21? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Final Posiitons

Bills

M _____________%

A ______________%

B ______________%

C ______________%

D ______________%

TOTAL _________________%

Reference no: EM132499067

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