# 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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Step 1

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

Alpha of Portfolio A can be calculated as follows:

Step 2

Alpha of Portfolio B can be calculated as follows:

Step 3

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

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