You are faced with two portfolios which you have been asked to rank in terms of selectivity. You have the following information: Risk-free rate is 4% Return on the market portfolio is 8% Return on portfolio A is 17% Return on portfolio B is 16% Actual beta of Portfolio A is 1.2, while target beta is 1 Actual beta of Portfolio B 1.0, while target beta is 0.9 Standard deviation of Portfolio A is 17% Standard deviation of Portfolio B 15% Standard deviation of the market portfolio is 7% Using Fama Decomposition, calculate the following for each portfolio: a) Return from Investor's risk b) Return from Manager's risk c) Return from Diversification

You are faced with two portfolios which you have been asked to rank in terms of selectivity. You have the following information: Risk-free rate is 4% Return on the market portfolio is 8% Return on portfolio A is 17% Return on portfolio B is 16% Actual beta of Portfolio A is 1.2, while target beta is 1 Actual beta of Portfolio B 1.0, while target beta is 0.9 Standard deviation of Portfolio A is 17% Standard deviation of Portfolio B 15% Standard deviation of the market portfolio is 7% Using Fama Decomposition, calculate the following for each portfolio: a) Return from Investor's risk b) Return from Manager's risk c) Return from Diversification

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
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