Need assistance with the following problem. Attempting to solve problem with HP

Question

Need assistance with the following problem. Attempting to solve problem with HP financial calculator and I am stuck. Thanks.

a. Beta, expected return of each asset, using CAPM, and Jensen’s alpha using the appropriate custom benchmark portfolio

b. What do you notice about the difference in expected return and alpha between the two portfolios?

c. Sharpe ratio and Treynor index

d. Modigliani measure using the appropriate custom benchmark portfolio

e. What do you notice about the difference in the two ratios and the Modigliani measure between the two portfolios?

Asset Class Allocation Rebalanced Period Not Rebalanced U.S. Large-Cap 20% 32.06% 1 32.06% U.S Mid-Cap 10% 15.40% 2 15.93% U.S. Small-Cap 10% 11.17% 3 11.69% U.S. Corp Bond 15% 14.31% 4 16.35% U.S. Gov't Bond 15% 7.44% 5 9.13% U.S. Balanced 5% -24.63% 6 -33.36% Global Equity 5% 25.42% 7 24.18% Non-U.S. Equity 15% 15.35% 8 16.06% Emerging Mkts 5% 2.33% 9 -1.49% Total 100.00% 17.23% 10 17.08% 11.61% Average 10.76% 10.53% Geomean 9.17% 15.25% StDev 17.83%

Explanation / Answer

Apply the formula, assume Left side as market return and Rebalanced and non-rebalanced for risk free rate.

Asset Class Allocation Rebalanced Return Period Not Rebalanced Return on not rebalanced Mean-return for rebalanced Mean-return for non rebalanced (X-x)(Y-y) Beta Treyors ratio Sharpe's ratio Jensens alpha Modigillani U.S. Large-Cap 20% 32.06% 6.41% 1 32.06% 6.41% 4.35% 4.35% 0% 0.08129 0.0000% 111.3292% 1.63%           0.20 U.S Mid-Cap 10% 15.40% 1.54% 2 15.93% 1.59% 9.22% 9.17% 1% 0.363428 5.3000% 55.2440% 3.97%           0.11 U.S. Small-Cap 10% 11.17% 1.12% 3 11.69% 1.17% 9.64% 9.59% 1% 0.397682 5.2000% 55.2440% 4.29%           0.11 U.S. Corp Bond 15% 14.31% 2.15% 4 16.35% 2.45% 8.61% 8.31% 1% 0.307688 13.6000% 83.2866% 6.03%           0.17 U.S. Gov't Bond 15% 7.44% 1.12% 5 9.13% 1.37% 9.64% 9.39% 1% 0.389409 11.2667% 83.2866% 6.87%           0.17 U.S. Balanced 5% -24.63% -1.23% 6 -33.36% -1.67% 11.99% 12.43% 1% 0.640819 -174.6000% 27.2013% 0.07%           0.04 Global Equity 5% 25.42% 1.27% 7 24.18% 1.21% 9.49% 9.55% 1% 0.389699 -24.8000% 27.2013% 1.19%           0.04 Non-U.S. Equity 15% 15.35% 2.30% 8 16.06% 2.41% 8.46% 8.35% 1% 0.303697 4.7333% 83.2866% 5.05%           0.16 Emerging Mkts 5% 2.33% 0.12% 9 -1.49% -0.07% 10.64% 10.83% 1% 0.495854 -76.4000% 27.2013% 0.55%           0.01 8% Total 100.00% 17.23% 14.79% 10 17.08% 14.87% 11.61% Average 10.76% 10.53% Geomean 9.17% Market individaul 15.25% StDev 17.83% 2.33% Variance 3.18% Assume allocation as return for the sake of calculation Risk Premium = Total Portfolio Return – Riskfree Rate Sharpe Ratio = Risk Premium / Standard Deviation of Portfolio

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.