# ADM 3352 Study Guide - Final Guide: Efficient Frontier, Dividend Yield, Business Cycle

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9 Jul 2014
School
Department
Course
Professor
Portfolio Managements
Final Exam
Fall 2007
(2 hour and 50 Minutes)
Dr. C. Guo
This is a closed book exam. One page (one side) of notes is permitted. A formula page is
provided at the end of the exam question sheet for your convenience, which may not include all
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Part I (50%): Problems solving questions
Part II (50%): Multiple choice questions
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Part I
Question 1 (20 points)
The risk-free interest rate is 5%, and the expected return of a passive equity portfolio is 12% with
standard deviation of 20%. You wish to establish an active sub-portfolio then combine it with the
passive portfolio to form an optimal portfolio. You have a total of \$100,000 to invest. You will
invest 20% in risk-free asset, and the rest in the optimal portfolio.
You are examining the following three individual stocks:
Stock Expected Return Beta Residual std. dev.
A 0.260 2.5 0.7
B 0.200 1.6 0.6
C 0.141 1.3 0.5
(1) (5 points) Calculate the weights for the active portfolio.
(1) (10 points) Calculate the alpha, beta, and residual standard deviation of the active portfolio.
(1) (5 points) Determine the exact allocation in dollar term for every asset in the complete
portfolio.
A 0. 260 2. 5 0. 035 0. 7 0. 071429 0. 403587
B 0. 200 1. 6 0. 038 0. 6 0. 105556 0. 596413
C 0. 141 1. 3 0 0. 5 0 0
Sum 0. 176984
w0 0. 1011338
w* 0. 112049
Dol l ar I nvest ment 100, 000. 00 Act i ve Por t f ol i o
Ri skf r ee Por t i on 0. 2
Ri skf r ee 0. 2 20, 000. 00
Por t f l i o
Por t f ol i o Por t f ol i o
Passi ve 0. 7103608 71, 036. 08 al ph bet a Resi d. Var
A 0. 0361773 3, 617. 73 0. 0141 1. 008969 0. 079813
B 0. 053462 5, 346. 20 0. 0227 0. 95426 0. 128055
C 0 - 0 0 0
Sum 1. 00 100, 000. 00 0. 0368 1. 963229 0. 207867
st d dev 0. 455925
Quest i on 2 Per f or mance At t r i but i on
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Question 2 (15 points)
The performance and weights of a managed portfolio and a bogey are given in the following
table:
Managed I ndex Managed
Benchmar k
Por t f ol i o Ret ur n Por f ol i o
Component Wei ght
Wei ght % Ret ur n ( %)
Equi t y 0. 6 0. 7 5. 81 7. 28
Bonds 0. 3 0. 07 1. 45 1. 89
Cash 0. 1 0. 23 0. 48 0. 48
(1) (5 points) What is the excess return of the managed portfolio over the bogey?
(1) (5 points) How much of the excess return can be attributable to asset allocation?
(1) (5 points) How much of the excess return can be attributable to security selection?
Managed I ndex Managed
Benchmar k
Por t f ol i o Ret ur n Por f ol i o Bogey Managed Excess
Component Wei ght
Wei ght % Ret ur n ( %) Ret ur n
Equi t y 0. 6 0. 7 5. 81 7. 28 3. 486 5. 096
Bonds 0. 3 0. 07 1. 45 1. 89 0. 435 0. 1323
Cash 0. 1 0. 23 0. 48 0. 48 0. 048 0. 1104
3. 969 5. 3387 1. 3697
Cont r i but i on of Asset Al l ocat i on
Benchmar k Managed Excess Cont r i but i on
Component Wei ght
Wei ght Wei ght I ndex( %) t o per f or mance
Equi t y 0. 6 0. 7 0. 1 5. 81 0. 581
Bonds 0. 3 0. 07 - 0. 23 1. 45 - 0. 3335
Cash 0. 1 0. 23 0. 13 0. 48 0. 0624
Sum 30. 99%
Cont r i but i on of sel ect i on t o t ot al per f or mance
Por f ol i o I ndex Excess Por t f ol i o Cont r i but i on
Per f omance
Per f or mance
Wei ght %
Equi t y 7. 28 5. 81 1. 47 0. 7 1. 029
Bonds 1. 89 1. 45 0. 44 0. 07 0. 0308
1. 0598
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