Professional Documents
Culture Documents
Single Index With Active Replacement Problem February 7
Single Index With Active Replacement Problem February 7
YOU MUST BE PRESENT TO TURN IN THIS HOMEWORK (AT THE START OF CLASS) IN ORDER TO RECEIVE CREDIT. Given the following: rM = 16%, M = 23%, rf = 8% Stock A B C D E(ri) 20% 18 17 12 1.3 1.8 0.7 1.0 (e) 58% 71 60 55 1.6% -4.4 3.4 -4.0 /2 (e) Ri=E(ri) - rf 0.000476 12% -0.00873 10 0.000944 9 -0.001322 4
We found the following (in class on Tuesday) for our actively managed portfolio when short sales are allowed: A = 16.90% , A = 2.08; (eA) = 147.68% ; wA *= -0.0486; wM *= 1.0486. Sharpe ratio S = 0.3662 1. What would be the composition of the active portfolio if short sales were disallowed? 2. Construct the optimal risky portfolio (that is, what is wA *, wM *, and the weight of the individuals securities in the actively managed portfolio. 3. What is the Sharpe measure for the optimal risky portfolio?