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 25 1.2 56 Stock B 19 1.6 70 Stock C 16 0.5 61 Stock D 13 1.0 53 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 7 0 Passive equity portfolio 15 21 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 0.4194. 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 = 2.7) given his new complete portfolio? (Do not round intermediate calculations.Round your answers to 2 decimal places.) Cases Utility Levels Unconstrained Constrained Passive

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 25 1.2 56 Stock B 19 1.6 70 Stock C 16 0.5 61 Stock D 13 1.0 53 Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills 7 0 Passive equity portfolio 15 21 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 0.4194. 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 = 2.7) given his new complete portfolio? (Do not round intermediate calculations.Round your answers to 2 decimal places.) Cases Utility Levels Unconstrained Constrained Passive

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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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.
Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Weight Return Weight Return Weight Return Stock 0.7 -4.8% 0.7 -3.9% 0.3 -4.8% Bonds 0.2 -3.1 0.1 -2.2 0.4 -3.1 Cash 0.1 0.3 0.2 0.3 0.3 0.3
Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Weight Return WEIGHT RETURN WEIGHT RETURN Stock 0.7 -4.7 0.7 -3.8 0.2 -4.7 % Bonds 0.2 -4.0 0.1 -2.2 0.6 -4.0 Cash 0.1 0.3 0.2 0.3 0.2 0.3 Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A’s actual portfolio, and (3) the overall return to Manager B’s actual portfolio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. Round your answers to two decimal places. Use a minus sign to enter negative values, if any. Overall return Benchmark % Manager A % Manager B % Using attribution analysis, calculate (1) the selection effect, and (2) the allocation effect for both Manager A and Manager B. Using these numbers in conjunction with your results from Part a, comment on whether these managers have added value…
Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGERB Weight Return Weight Return Weight Return Stock 0.7 -4.8% 0.7 -3.9% 0.3 -4.8% Bonds 0.2 -3.1 0.1 -2.2 0.4 -3.1 Cash 0.1 0.3 0.2 0.3 0.3 0.3 a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfolio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. Round your answers to two decimal places. Use a minus sign to enter negative values, if any. Overall return Benchmark Manager A % Manager B % Manager A has -Select- v the benchmark fund. Manager B has -Select- | the benchmark fund. b. Using attribution analysis, calculate (1) the selection effect, and (2) the allocation effect for both Manager A and Manager B. Using these numbers in conjunction with your results from Part a, comment on whether…
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.)
The return, standard deviation, market risk premium and Beta (β) of A, B, C, D and the Market Portfolio and the risk-free interest rate are given in the table below. Find the performance of portfolios (excluding Sortino). portfolio return (rp) risk free interest rate (rf) std. deviation Beta market risk premium (rp- rf) A 18,00 11,00 6,00 1,24 7,00 B 12,00 11,00 2,00 0,87 1,00 C 9,00 11,00 0,50 - 0,73 - 2,00 D 15,00 11,00 3,00 0,46 4,00 Market 13,00 11,00 1,50 1 2,00
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.
6. Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Return Weight Weight Weight Return Return Stock 0.5 -4.0% 0.6 -5.0% 0.3 -5.0% Bonds 0.3 -3.5 0.2 -2.5 0.4 -3.5 0.1 Cash 0.3 0.3 0.3 0.3 0.3 Evaluation of Asset Management a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfo- lio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the allocation effect for Manager B. Using these numbers in conjunction with your results from part (a), comment on whether these managers have added value through their selection skills, their allocation skills, or both.
You are given the following information concerning three portfolios, the market portfolio, and the risk- free asset: Portfolio X Y Z Market Risk-free Rp 14.5% R-squared 13.5 9.1 10.7 5.4 op 36% 31 21 26 0 6p 1.60 1.30 .80 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 72. What percentage of Portfolio Y's return is driven by the market? (Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.)
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
Assume the risk-free rate is r = 3%. Consider the data in the table below: Stock Expected Return Volatility Stock 1 15% 40% Stock 2 7% 30% acompute (c) Determine the tangent portfolios & their respective mean returns and volatilities
From the following information, calculate covariance between stocks A and B and expected return and risk of a portfolio in which A and B are equally weighted.Which stock would be recommend if investment in individual stock is to be made? Justify answer using numerical calculations. Stock A Stock B Expected return 24% 35% Standard deviation 12% 18% Coefficient of correlation 0.65 0.65