1. Assume a particular stock has an annual standard deviation of 55 percent. Wha
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Question
1. Assume a particular stock has an annual standard deviation of 55 percent. What is the standard deviation for a 2-month period? (Round your answer to 2 decimal place. Omit the "%" sign in your response.)
Standard deviation
%
2. Consider the following information concerning three portfolios, the market portfolio, and the risk-free asset:
Portfolio
RP
P
P
X
12.5
%
38
%
1.45
Y
11.5
33
1.15
Z
9.4
23
.80
Market
11.9
28
1.00
Risk-free
6.2
0
0
What is the Sharpe ratio, Treynor ratio, and Jensen’s alpha for each portfolio? (Round your Sharpe ratio answer and Treynor ratio answer to 5 decimals and Jensen's alpha answers to 3 decimal places. Negative amounts should be indicated by a minus sign. Omit the "%" sign in your response.)
Portfolio
Sharpe ratio
Treynor ratio
Jensen's alpha
X
%
Y
%
Z
%
Market
%
3. Consider the following information concerning three portfolios, the market portfolio, and the risk-free asset:
Portfolio
RP
P
P
X
14
%
20
%
1.8
Y
13
15
1.3
Z
9.2
5
0.85
Market
11.1
10
1
Risk-free
6.6
0
0
Assume that the tracking error of Portfolio X is 10.6 percent. What is the information ratio for Portfolio X? (Round your answer to 4 decimal place.)
Information ratio
4. Consider the following information concerning three portfolios, the market portfolio, and the risk-free asset:
Portfolio
RP
P
P
X
12.5
%
34
%
1.5
Y
11.5
29
1.20
Z
7.1
19
0.8
Market
10.5
24
1
Risk-free
6.2
0
0
Assume that the correlation of returns on Portfolio Y to returns on the market is 0.68. What is the percentage of Portfolio Y’s return that is driven by the market? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Y’s return explained by market
%
1. Assume a particular stock has an annual standard deviation of 55 percent. What is the standard deviation for a 2-month period? (Round your answer to 2 decimal place. Omit the "%" sign in your response.)
Explanation / Answer
1. Two month standard deviation = Annual standard deviation / Square root of (12/2)
= 55% / SQRT(6) = 22.45%
2. The required ratios can be calculated as follows
Sharpe ratio = (Mean portfolio return Risk-free rate)/Standard deviation of portfolio return
Treynor Ratio = (Average Return of the Portfolio - Average Return of the Risk-Free Rate) / Beta of the Portfolio
Jensen's Aplha = Total return - Expected return calculated from CAPM model
All the calculations are made in the following table
CAPM model retun = Risk free rate + Beta * (Market return - risk free return)
RP P P Sharpe Ratio Treynor Ratio Jensen's Alpha Return from CAPM X 12.50% 38.00% 1.45 16.57895% 4.34483% -1.965% 14.47% Y 11.50% 33.00% 1.15 16.06061% 4.60870% -1.255% 12.76% Z 9.40% 23.00% 0.80 13.91304% 4.00000% -1.360% 10.76% Market 11.90% 28.00% 1.00 Risk Free 6.20% 0.00% 0.00Related Questions
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