A portfolio manager summarizes the input from the macro and micro forecasts in the following table:Micro ForecastsAssetExpected Return (%)BetaResidual Standard Deviation (%)Stock A1.002060Stock B2.501840Macro ForecastsExpected Return (%)Standard Deviation (%)AssetT-bills5оPassive Equity Portfolio (m)1225a. Calculate expected excess returns, alpha values, and residual variances for these stocks.Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values.Expected excess return on stock AExpected excess return on stock BAlpha of stock AAlpha of stock BInstruction: Enter your answer as a decimal number rounded to two decimal places for residual variances.Residual variance of stock AResidual variance of stock BInstruction: for part b, enter your response as a decimal number rounded to four decimal places.b. Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the abovetwo stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150%What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)? Micro ForecastsResidual Standard Deviation (%AssetExpected Return (%)BetaStock A201.0060Stock B182.5040Macro ForecastsExpected Return (%)AssetStandard Deviation (%)O0T-billsPassive Equity Portfolio (m)1225a. Calculate expected excess returns, alpha values, and residual variances for these stocks.Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values.Expected excess return on stock AExpected excess return on stock BAlpha of stock AAlpha of stock BInstruction: Enter your answer as a decimal number rounded to two decimal places for residual variances.Residual variance of stock AResidual variance of stock BInstruction: for part b, enter your response as a decimal number rounded to four decimal places.b. Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the abovetwo stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150%.What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)?What's the M2 of the optimal portfolio?

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Asked Nov 25, 2019
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A portfolio manager summarizes the input from the macro and micro forecasts in the following table:
Micro Forecasts
Asset
Expected Return (%)
Beta
Residual Standard Deviation (%)
Stock A
1.00
20
60
Stock B
2.50
18
40
Macro Forecasts
Expected Return (%)
Standard Deviation (%)
Asset
T-bills
5
о
Passive Equity Portfolio (m)
12
25
a. Calculate expected excess returns, alpha values, and residual variances for these stocks.
Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values.
Expected excess return on stock A
Expected excess return on stock B
Alpha of stock A
Alpha of stock B
Instruction: Enter your answer as a decimal number rounded to two decimal places for residual variances.
Residual variance of stock A
Residual variance of stock B
Instruction: for part b, enter your response as a decimal number rounded to four decimal places.
b. Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the above
two stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150%
What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)?
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A portfolio manager summarizes the input from the macro and micro forecasts in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 1.00 20 60 Stock B 2.50 18 40 Macro Forecasts Expected Return (%) Standard Deviation (%) Asset T-bills 5 о Passive Equity Portfolio (m) 12 25 a. Calculate expected excess returns, alpha values, and residual variances for these stocks. Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values. Expected excess return on stock A Expected excess return on stock B Alpha of stock A Alpha of stock B Instruction: Enter your answer as a decimal number rounded to two decimal places for residual variances. Residual variance of stock A Residual variance of stock B Instruction: for part b, enter your response as a decimal number rounded to four decimal places. b. Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the above two stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150% What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)?

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Micro Forecasts
Residual Standard Deviation (%
Asset
Expected Return (%)
Beta
Stock A
20
1.00
60
Stock B
18
2.50
40
Macro Forecasts
Expected Return (%)
Asset
Standard Deviation (%)
O0
T-bills
Passive Equity Portfolio (m)
12
25
a. Calculate expected excess returns, alpha values, and residual variances for these stocks.
Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values.
Expected excess return on stock A
Expected excess return on stock B
Alpha of stock A
Alpha of stock B
Instruction: Enter your answer as a decimal number rounded to two decimal places for residual variances.
Residual variance of stock A
Residual variance of stock B
Instruction: for part b, enter your response as a decimal number rounded to four decimal places.
b. Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the above
two stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150%.
What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)?
What's the M2 of the optimal portfolio?
help_outline

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Micro Forecasts Residual Standard Deviation (% Asset Expected Return (%) Beta Stock A 20 1.00 60 Stock B 18 2.50 40 Macro Forecasts Expected Return (%) Asset Standard Deviation (%) O0 T-bills Passive Equity Portfolio (m) 12 25 a. Calculate expected excess returns, alpha values, and residual variances for these stocks. Instruction: Enter your answer as a percentage (rounded to two decimal places) for expected excess returns and alpha values. Expected excess return on stock A Expected excess return on stock B Alpha of stock A Alpha of stock B Instruction: Enter your answer as a decimal number rounded to two decimal places for residual variances. Residual variance of stock A Residual variance of stock B Instruction: for part b, enter your response as a decimal number rounded to four decimal places. b. Suppose that the portfolio manager follows the Treynor-Black model, and constructs an active portfolio (p) that consists of the above two stocks. The alpha of the active portfolio (p) is -18%, and its residual standard deviation is 150%. What is the Sharpe ratio for the optimal portfolio (consisting of the passive equity portfolio and the active portfolio (p)? What's the M2 of the optimal portfolio?

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Hi there, Thanks for posting the question. As per Q&A Guidelines, we should answer the first question when multiple questions posted under single question. Hence, I have answered part A below. Please repost the other questions separately. Thank you.

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Calculate the excess returns, alpha, an...

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A В C E G Expecte return Beta Alpha Excess return Residual SD Variance Asset 1 2 Stock A 3 Stock B 4 T-bills 5 Passive equity portfolio 20% 1 8.00% 15% 60% 36% 2.54.500% 40% 18% 13% 16% 5% 0 25 12% В E Excess return Residual SD Variance 0.6 0.4 0 25 Expecte return Beta 0.2 0.18 0.05 Alpha Asset 1 1 |=B2-(B4+(C2*(B5-B4)) =B2-B4 =F2A2 =F3^2 2 Stock A 3 Stock B 2.5 B3-(B4+(C3*(B5-B4))) =B3-B4 4 T-bills 5 Passive equity portfolio 0.12 co

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