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Investments (10th Edition) See this solution in the app Chapter 8. Problem 17PS 24 Bookmarks...

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Investments (10th Edition) See this solution in the app Chapter 8. Problem 17PS 24 Bookmarks Show all steps: CN Problem 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 Stock B 18 Stock C Stock D Macro Forecasts Asset Expected Return (%) Standard Deviation (%) T-bills Passive equity portfolio Step 13 of 14 A Now, since A = 2.8. the optimal position in this portfolio is thus calculated as: y=- 8.42 0.01x2.8x528.94 = 0.5685 Now, if we use the passive strategy then 0.01x2.8x232 -0.5401 Comment Step 14 of 14 A Hence, the difference is between the Sharpe measure of the risky portfolio and the mar =0.5685-0.5401 -0.0284 The final positions are (M may include some of stocks A through D): Bills 1-0.5685 43.15% 0.5685x0.0486 59.61% 0.5685*(-0.0486)*(-0.6142) 1.70% 0.5685X(-0.0486) 1.1265 -3.11% 0.5685*(-0.0486) (-1.2181) 3.37%

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