Based on current dividend yields and expected capital gains, the expected rates ofreturn on portfolios A and B are 9.1% and 12.1%, respectively. The beta of A is .7, while thatof B is 1.7. The T-bill rate is currently 5%, while the expected rate of return of the S&P 500index is 10%. The standard deviation of portfolio A is 27% annually, while that of B is 48%,and that of the index is 37%Think about what are the appropriate performance measures to use in question a and band whya. If you currently hold a market index portfolio, what would be the alpha for PortfoliosA and B? (Negative value should be indicated by a minus sign. Do not roundintermediate calculations. Enter your answer as a percentage rounded to 1decimal place.)AlphaPortfolio APortfolio Bb-1. If instead you could invest only in bills and one of these portfolios, calculate thesharpe measure for Portfolios A and B. (Enter your answer as a decimal rounded to2 decimal places.)Sharpe MeasurePortfolio APortfolio B

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Asked Nov 25, 2019
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Based on current dividend yields and expected capital gains, the expected rates of
return on portfolios A and B are 9.1% and 12.1%, respectively. The beta of A is .7, while that
of B is 1.7. The T-bill rate is currently 5%, while the expected rate of return of the S&P 500
index is 10%. The standard deviation of portfolio A is 27% annually, while that of B is 48%,
and that of the index is 37%
Think about what are the appropriate performance measures to use in question a and b
and why
a. If you currently hold a market index portfolio, what would be the alpha for Portfolios
A and B? (Negative value should be indicated by a minus sign. Do not round
intermediate calculations. Enter your answer as a percentage rounded to 1
decimal place.)
Alpha
Portfolio A
Portfolio B
b-1. If instead you could invest only in bills and one of these portfolios, calculate the
sharpe measure for Portfolios A and B. (Enter your answer as a decimal rounded to
2 decimal places.)
Sharpe Measure
Portfolio A
Portfolio B
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Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 9.1% and 12.1%, respectively. The beta of A is .7, while that of B is 1.7. The T-bill rate is currently 5%, while the expected rate of return of the S&P 500 index is 10%. The standard deviation of portfolio A is 27% annually, while that of B is 48%, and that of the index is 37% Think about what are the appropriate performance measures to use in question a and b and why a. If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 1 decimal place.) Alpha Portfolio A Portfolio B b-1. If instead you could invest only in bills and one of these portfolios, calculate the sharpe measure for Portfolios A and B. (Enter your answer as a decimal rounded to 2 decimal places.) Sharpe Measure Portfolio A Portfolio B

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Expert Answer

Step 1

A.

Calculate the alpha of portfolios as follows:

Portfolio A:

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Alpha inr) 5%+0.7 x (10%-5%) 0.05+0.035 0.085 or 8.5%

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Step 2

Portfolio B:

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Alphag y+(r) -5%+1.7x (10%-5%) 0.05+0.085 0.135 or 13.5%

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Step 3

B.

Calculate the reward to volatility rati...

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E (T,)-17 Reward to volatility ratio 10%-5% 27% 0.05 0.27 0.185185185185185 or 18.52%

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