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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% 0.00