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 25 1.2 56 Stock B 19 1.6 70 Stock C 16 0.5 61 Stock D 13 1.0 53 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 7 0 Passive equity portfolio 15 21 Calculate the following for a portfolio manager who is not allowed to short sell securities. If allowed to short sell securities, the manager's Sharpe ratio is 0.4194. a. What is the cost of the restriction in terms of Sharpe’s measure? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Cost of restriction b. What is the utility loss to the investor (A = 2.7) given his new complete portfolio? (Do not round intermediate calculations.Round your answers to 2 decimal places.) Cases Utility Levels Unconstrained Constrained Passive
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 25 1.2 56 Stock B 19 1.6 70 Stock C 16 0.5 61 Stock D 13 1.0 53 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 7 0 Passive equity portfolio 15 21 Calculate the following for a portfolio manager who is not allowed to short sell securities. If allowed to short sell securities, the manager's Sharpe ratio is 0.4194. a. What is the cost of the restriction in terms of Sharpe’s measure? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) Cost of restriction b. What is the utility loss to the investor (A = 2.7) given his new complete portfolio? (Do not round intermediate calculations.Round your answers to 2 decimal places.) Cases Utility Levels Unconstrained Constrained Passive
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A
| Micro Forecasts | ||||||||
| Asset | Expected Return (%) | Beta | Residual Standard Deviation (%) | |||||
| Stock A | 25 | 1.2 | 56 | |||||
| Stock B | 19 | 1.6 | 70 | |||||
| Stock C | 16 | 0.5 | 61 | |||||
| Stock D | 13 | 1.0 | 53 | |||||
| Macro Forecasts | |||||||
| Asset | Expected Return (%) | Standard Deviation (%) | |||||
| T-bills | 7 | 0 | |||||
| Passive equity portfolio | 15 | 21 | |||||
Calculate the following for a portfolio manager who is not allowed to short sell securities. If allowed to short sell securities, the manager's Sharpe ratio is 0.4194.
a. What is the cost of the restriction in terms of Sharpe’s measure? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)
| Cost of restriction |
b. What is the utility loss to the investor (A = 2.7) given his new complete portfolio? (Do not round intermediate calculations.Round your answers to 2 decimal places.)
| Cases | Utility Levels |
| Unconstrained | |
| Constrained | |
| Passive |
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