Based on current dividend yields and expected capital gains, the expected rates of return on portfolios Aand B are 9.7% and 12.1%, respectively. The beta of A is .9, while that of B is 1.7. The T-bill rate is currently 5%, while the expected rate of return of the S&P 500 index is 10%. The standard deviation of portfolio A is 19% annually, while that of B is 40%, and that of the index is 29%.
a. If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B?(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 1 decimal place.)
Portfolio A % Portfolio B %
b-1. If instead you could invest only in bills and one of these portfolios, calculate the sharpe measure for Portfolios A and B. (Round your answers to 2 decimal places.)
Sharpe Measure Portfolio A Portfolio B
b-2. Which portfolio would you choose? Portfolio A Portfolio B
| Based on current dividend yields and expected capital gains, the expected rates of return on portfolios Aand B are 9.7% and 12.1%, respectively. The beta of A is .9, while that of B is 1.7. The T-bill rate is currently 5%, while the expected rate of return of the S&P 500 index is 10%. The standard deviation of portfolio A is 19% annually, while that of B is 40%, and that of the index is 29%. |
| a. | If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B?(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 1 decimal place.) | |
| Portfolio A | % | |
| Portfolio B | % | |
| b-1. | If instead you could invest only in bills and one of these portfolios, calculate the sharpe measure for Portfolios A and B. (Round your answers to 2 decimal places.) |
| Sharpe Measure | ||
| Portfolio A | ||
| Portfolio B | ||
| b-2. | Which portfolio would you choose? | |||||
| ||||||
Related questions
Asset W has an expected return of 10.4 percent and a beta of 1.25. If the risk-free rate is 3.2 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Round your expected return answers to 2 decimal places. (e.g., 32.16) and beta answers to 3 decimal places. (e.g., 32.161))
| Percentage of Portfolio in Asset W | Portfolio Expected Return | Portfolio Beta | |||
| 0 | % | % | |||
| 25 | % | ||||
| 50 | % | ||||
| 75 | % | ||||
| 100 | % | ||||
| 125 | % | ||||
| 150 | % | ||||
| If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Round your answer to 2 decimal places. (e.g., 32.1616)) |
| Slope of the line | % |
