What is the sharpe ratio for the optimal portfolio

Reference no: EM132182260

Question - A portfolio manager summarizes the input from the macro and micro forecasters in the following table:

Micro Forecasts
Asset	Expected Return (%)	Beta	Residual Standard Deviation (%)
Stock A	22	1.4	53
Stock B	21	1.8	61
Stock C	19	0.7	58
Stock D	16	1.1	46

Micro Forecasts
Asset	Expected Return (%)	Standard Deviation (%)
T-bills	7	0
Passive equity portfolio	16	20

a. Calculate expected excess returns, alpha values, and residual variances for these stocks.

b. Compute the proportion in the optimal risky portfolio.

c. What is the Sharpe ratio for the optimal portfolio?

d. By how much did the position in the active portfolio improve the Sharpe ratio compared to a purely passive index strategy?

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 1.9?

Reference no: EM132182260

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