# 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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Calculate the excess returns, alpha, an...

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