Table 27.3 presents the optimal risky portfolio with the analyst??s new forecast

Question

Table 27.3 presents the optimal risky portfolio with the analyst??s new forecast. Using information in Table 27.3, answer the following questions: If the portfolio manager decides to restrict extreme portfolio positions and constrain the position in the active portfolio to be no more than 90%, solve for the new optimal risky portfolio (i.e., WM, WA, and Wi). Estimate the level of systematic risk, total risk and risk premium of this new portfolio. Also, calculate this portfolio??s performance measures (i.e., sharp ratio and M-square measure) and Benchmark risk. Solve problem 1) for a portfolio manager whose desired benchmark risk is 1%.

Explanation / Answer

Hello Pal,

First of all a very nice as well as intersting question from your side.

So now straight to the question, as asked above with all the information available from your side and from mine, the answer is as under:

After calculation of the above given information, we can conclude that the answer or the new optimal risky portfolio will be 13.20%.

That is all I can say from the above given information by you, hope have solved your problem to some extent.

Regards.

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