Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 13% and 15% respectively. The beta of A is 0.8 while that of B is 1.3. The T-bill rate is currently 7% while the expected rate of return of the S&P500 index is at 14%. The standard deviation of portfolio A and B are 20% and 41%, and that of the index is 30%. a. b. C. C. Compare the performance of the two portfolios relative to the market using the four performance measures: Sharpe ratio, Treynor ratio, Jensen's Alpha and M². Comment on the calculated results. Would you choose to add A or B to your holdings if you currently hold a market-index portfolio? Justify your decision. Which portfolio would you choose if instead you could invest only in Treasury bills and one of these portfolios? Explain your answer. Could a portfolio show a higher Sharpe ratio but a lower M² measure at the same time? Explain your answer.

Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 13% and 15% respectively. The beta of A is 0.8 while that of B is 1.3. The T-bill rate is currently 7% while the expected rate of return of the S&P500 index is at 14%. The standard deviation of portfolio A and B are 20% and 41%, and that of the index is 30%. a. b. C. C. Compare the performance of the two portfolios relative to the market using the four performance measures: Sharpe ratio, Treynor ratio, Jensen's Alpha and M². Comment on the calculated results. Would you choose to add A or B to your holdings if you currently hold a market-index portfolio? Justify your decision. Which portfolio would you choose if instead you could invest only in Treasury bills and one of these portfolios? Explain your answer. Could a portfolio show a higher Sharpe ratio but a lower M² measure at the same time? Explain your answer.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12P

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