FNCE30001 Study Guide - Final Guide: Explained Variation, Expected Return, Standard Deviation

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lavendermoose527

21 Nov 2018

School

University of Melbourne

Department

Finance

Course

FNCE30001

Professor

Brown

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Document Summary

A portfolio manager summarizes the input from the macro and micro forecasters in the following table micro forecasts. I = ri [rf + i (rm rf ) ] A = 20% [8% + 1. 3 (16% 8%)] = 1. 6% B = 18% [8% + 1. 8 (16% 8%)] = 4. 4% C = 17% [8% + 0. 7 (16% 8%)] = 3. 4% D = 12% [8% + 1. 0 (16% 8%)] = 4. 0% Stocks a and c have positive alphas, whereas stocks b and d have negative alphas. To construct the optimal risky portfolio, we first determine the optimal active portfolio. Using the treynor-black technique, we construct the active portfolio: Be unconcerned with the negative weights of the positive stocks the entire active position will be negative, returning everything to good order. With these weights, the forecast for the active portfolio is: = [ 0. 6142 1. 6] + [1. 1265 ( 4. 4)] [1. 2181 3. 4] + [1. 7058 ( 4. 0)]

Related Questions

5.. Consider the two (excess return) index-model regression results for stocks A and B. The riskfree rate over the period was 8%, and the marketâs average return was 16%. Performance is measured using an index model regression on excess returns.

	Stock A	Stock B

Index model regression estimates	1% + 1.2(r_M â r_f)	2% + .8(r_M â r_f)
R-square	0.677	0.487
Residual standard deviation, Ï(e)	12%	20.8%
Standard deviation of excess returns	23.3%	28.3%

Calculate the following statistics for each stock: (Round your answer to 4 decimal places. Omit the "%" sign in your response.)

		Stock A		Stock B
i.	Alpha	1	%	2	%
ii.	Information ratio	______?		______?
iii.	Sharpe measure	______?		______?
iv.	Treynor measure	8.8330		10.500

(((NUMBERS BELOW ARE NOT THE CORRECT ANSWERS)))

Information Ratio = Alpha/Standard deviation residual

For stock A, = 1/10.3 = 0.0971 For stock B, = 2/19.1 = 0.1047

Sharpe Measure = Excess returns / Standard deviation of excess returns

For stock A, = (1+1.2*(16-8))/21.6 = 0.4907 For stock B, = (2+0.8*(16-8))/24.9 = 0.3373

orchidantelope903

5. Consider the two (excess return) index-model regression results for stocks A and B. The riskfree rate over the period was 8%, and the marketâs average return was 16%. Performance is measured using an index model regression on excess returns.

	Stock A	Stock B

Index model regression estimates	1% + 1.2(r_M â r_f)	2% + .8(r_M â r_f)
R-square	0.677	0.487
Residual standard deviation, Ï(e)	12%	20.8%
Standard deviation of excess returns	23.3%	28.3%

Calculate the following statistics for each stock: (Round your answer to 4 decimal places. Omit the "%" sign in your response.)

		Stock A		Stock B
i.	Alpha	__________	%?	_________	%?
ii.	Information ratio	__________	?	________?
iii.	Sharpe measure	__________	?	________?
iv.	Treynor measure	__________	?	________?

taupeduck629

Jamie Wong is considering building a portfolio containing two assets, L and M. Asset L will represent 40% of the dollar value of the portfolio, and asset M will account for the other 60%. The expected returns over the next 6 years, 2004–2009, for each of these assets, are shown in the following table.

Year	Asset L	Asset M
2004	14%	20%
2005	14	18
2006	16	16
2007	17	14
2008	17	12
2009	19	10

a. Calculate the expected portfolio return.

b. Calculate the standard deviation of expected portfolio returns.

c. Find out covariance and correlation coefficient.

bluetermite764

FNCE30001 Study Guide - Final Guide: Explained Variation, Expected Return, Standard Deviation

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