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Based on current dividend yields and expected capital gains, the expected rates of return on portfolios...

Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11% and 14%, respectively. The beta of A is .8, while that of B is 1.5. The T-bill rate is currently 6%, while the expected rate of return of the S&P 500 index is 12%. The standard deviation of portfolio A is 10% annually, while that of B is 31%, and that of the index is 20%.

a. If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 1 decimal place.)

Alpha
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

Solutions

Expert Solution

Calculate the alpha and sharpe ratio as follows:

Formulas:

jeff jeffy answered 1 year ago
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