You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return, standard deviation, and CAPM beta estimates for these two managers over the past five years: Portfolio Actual Avg. Return Standard Deviation Beta Manager Y 11.30 % 13.20 % 1.20 Manager Z 8.00 7.80 0.90 Additionally, your estimate for the risk premium for the market portfolio is 4.00 percent and the risk-free rate is currently 5.00 percent. Calculate each fund manager's average "alpha" (i.e., actual return minus expected return) over the five-year holding period. Round your answers to two decimal places. Manager Y: % Manager Z: % Choose the correct SML graph.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You are an analyst for a large public pension fund and you have been assigned the task of
evaluating two different external portfolio managers (Y and Z). You consider the following
historical average return, standard deviation, and CAPM beta estimates for these two
managers over the past five years:
Portfolio
Actual Avg. Return
Standard Deviation
Beta
Manager Y
11.30
13.20 %
1.20
Manager Z
8.00
7.80
%
0.90
Additionally, your estimate for the risk premium for the market portfolio is 4.00 percent and
the risk-free rate is currently 5.00 percent.
Calculate each fund manager's average "alpha" (i.e., actual return minus expected return)
over the five-year holding period. Round your answers to two decimal places.
Manager Y: %
Manager Z: %
Choose the correct SML graph.
Transcribed Image Text:You are an analyst for a large public pension fund and you have been assigned the task of evaluating two different external portfolio managers (Y and Z). You consider the following historical average return, standard deviation, and CAPM beta estimates for these two managers over the past five years: Portfolio Actual Avg. Return Standard Deviation Beta Manager Y 11.30 13.20 % 1.20 Manager Z 8.00 7.80 % 0.90 Additionally, your estimate for the risk premium for the market portfolio is 4.00 percent and the risk-free rate is currently 5.00 percent. Calculate each fund manager's average "alpha" (i.e., actual return minus expected return) over the five-year holding period. Round your answers to two decimal places. Manager Y: % Manager Z: % Choose the correct SML graph.
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