A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 27 0.8 59 Stock B 12 1.2 69 Stock C 11 0.5 62 Stock D 9 0.6 54 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 6 0 Passive equity portfolio 12 20 Calculate the following for a portfolio manager who is not allowed to short sell securities. If allowed to short sell securities, the manager's Sharpe ratio is 0.4085. a. What is the cost of the restriction in terms of Sharpe’s measure? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) b. What is the utility loss to the investor (A = 3.0) given his new complete portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
A portfolio manager summarizes the input from the macro and micro forecasters in the following table: Micro Forecasts Asset Expected Return (%) Beta Residual Standard Deviation (%) Stock A 27 0.8 59 Stock B 12 1.2 69 Stock C 11 0.5 62 Stock D 9 0.6 54 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 6 0 Passive equity portfolio 12 20 Calculate the following for a portfolio manager who is not allowed to short sell securities. If allowed to short sell securities, the manager's Sharpe ratio is 0.4085. a. What is the cost of the restriction in terms of Sharpe’s measure? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.) b. What is the utility loss to the investor (A = 3.0) given his new complete portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
A
| Micro Forecasts | ||||||||
| Asset | Expected Return (%) | Beta | Residual Standard Deviation (%) | |||||
| Stock A | 27 | 0.8 | 59 | |||||
| Stock B | 12 | 1.2 | 69 | |||||
| Stock C | 11 | 0.5 | 62 | |||||
| Stock D | 9 | 0.6 | 54 | |||||
| Macro Forecasts | |||||||
| Asset | Expected Return (%) | Standard Deviation (%) | |||||
| T-bills | 6 | 0 | |||||
| Passive equity portfolio | 12 | 20 | |||||
Calculate the following for a portfolio manager who is not allowed to short sell securities. If allowed to short sell securities, the manager's Sharpe ratio is 0.4085.
a. What is the cost of the restriction in terms of Sharpe’s measure? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.)
b. What is the utility loss to the investor (A = 3.0) given his new complete portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Transcribed Image Text:Standard
Asset
Expected Return (%)
Deviation (%)
T-bills
6
Passive equity portfolio
12
20
Calculate the following for a portfolio manager who is not allowed to short sell securities. If allowed to short sell securities, the
manager's Sharpe ratio is 0.4085.
a. What is the cost of the restriction in terms of Sharpe's measure? (Do not round intermediate calculations. Enter your answer as
decimals rounded to 4 places.)
Cost of restriction
b. What is the utility loss to the investor (A = 3.0) given his new complete portfolio? (Do not round intermediate calculations. Round
your answers to 2 decimal places.)
Cases
Utility Levels
Unconstrained
Constrained
Passive
%
%
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