INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 9, Problem 8CP
Summary Introduction
To determine: Choose the correct option for the portfolio R lies on the preceding table
Introduction: The
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The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07.Portfolio Return Beta σiA 0.15 1.0 0.05B 0.20 1.5 0.10C 0.10 0.6 0.03D 0.17 1.1 0.06Market 0.13 1.0 0.04
a. Compute the Sharpe measure for each portfolio and the market portfolio.
b. Compute the Treynor measure for each portfolio and the market portfolio.
c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.
As a portfolio manager, you are required to take investment decision from the following two alternative scenarios: (Decision Criterion: Select a portfolio on relative risk basis)
Scenario 1: Construct a portfolio with 60% investment in ICC:
Expected Return (in %) Risk (as Std Div.) Covariance
BPL 12 4 BPL & ICC: -1.2
ICC 7 2
Scenario 2: Construct equal weighted portfolios from following securities
Expected Return (in %) Risk (as Std Div.) Covariance
PSL 11 5 PSL & IPL: 3.75
IPL 8 3
Consider the following performance data for a portfolio manager:
Benchmark
Portfolio
Index
Portfolio
Weight
Weight
Return
Return
Stocks
0.65
0.7
0.11
0.12
Bonds
0.3
0.25
0.07
0.08
Cash
0.05
0.05
0.03
0.025
a.Calculate the percentage return that can be attributed to the asset allocation decision.
b.Calculate the percentage return that can be attributed to the security selection decision.
Chapter 9 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
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