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 Consider the following information regarding the performance of a money manager in arecent month. The table presents the actual return of each sector of the manager'sportfolio in column (1), the fraction of the portfolio allocated to each sector in column (2),the benchmark or neutral sector allocations in column (3), and the returns of sectorindexes in column (4)(1)Actual(2)Actual Benchmark(3)(4)IndexReturnReturn2.8%Weight0.40Weight0.303.5% (S&P 500)(Aggregate Bondindex)EquityBonds1.70.400.502.4Cash0.201.50.201.5a-1. What was the manager's return in the month? (Do not round intermediatecalculations.Enter your answer as a percentage rounded to 2 decimal places.)Manager's returna-2. What was her over- or under-performance? (Enter a positive value for over-performance or a negative value (using a minus sign) for under-performance. Donot round intermediate calculations. Enter your answer as a percentage roundedto 2 decimal places.)Over-or underperformanceIAIL.a:L.: - ..:.--

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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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Consider the following information regarding the performance of a money manager in a
recent month. The table presents the actual return of each sector of the manager's
portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2),
the benchmark or neutral sector allocations in column (3), and the returns of sector
indexes in column (4)
(1)
Actual
(2)
Actual Benchmark
(3)
(4)
Index
Return
Return
2.8%
Weight
0.40
Weight
0.30
3.5% (S&P 500)
(Aggregate Bond
index)
Equity
Bonds
1.7
0.40
0.50
2.4
Cash
0.20
1.5
0.20
1.5
a-1. What was the manager's return in the month? (Do not round intermediate
calculations.
Enter your answer as a percentage rounded to 2 decimal places.)
Manager's return
a-2. What was her over- or under-performance? (Enter a positive value for over-
performance or a negative value (using a minus sign) for under-performance. Do
not round intermediate calculations. Enter your answer as a percentage rounded
to 2 decimal places.)
Over-or underperformance
IAIL
.a:L.: - ..
:.
--
help_outline

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Consider the following information regarding the performance of a money manager in a recent month. The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column (4) (1) Actual (2) Actual Benchmark (3) (4) Index Return Return 2.8% Weight 0.40 Weight 0.30 3.5% (S&P 500) (Aggregate Bond index) Equity Bonds 1.7 0.40 0.50 2.4 Cash 0.20 1.5 0.20 1.5 a-1. What was the manager's return in the month? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Manager's return a-2. What was her over- or under-performance? (Enter a positive value for over- performance or a negative value (using a minus sign) for under-performance. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Over-or underperformance IAIL .a:L.: - .. :. --

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Expert Answer

Step 1

a) Alpha measures the performance of the portfolio against the market index.

Alpha of Portfolio A can be calculated as follows:

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alpha R-R-betax (R-R) =9.1%-5%-0.7 x (10%-5% _ =9.1%-5%-3.5% 0.60%

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Step 2

Alpha of Portfolio B can be calculated as follows:

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alpha3 R-R-betax (R,-R) =12.1%-5%-1.7 x (10% - 5% ) =12.1%-5%-8.50% =12.1 %-13.50% =-1.40%

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Step 3

Answer: Alpha for Portfolio A is 0.6%. &nbs...

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