Problem 18-5

 Based on current dividend yields and expected capital gains, the expected rates of return on portfolios?Aand?B?are 7.1% and 8.3%, respectively. The beta of?A?is .6, while that of?B?is 1.5. The T-bill rate is currently 4%, while the expected rate of return of the S&P 500 index is 8%. The standard deviation of portfolio?A?is 21% annually, while that of?B?is 42%, and that of the index is 31%.

 a. If you currently hold a market index portfolio, what would be the alpha for Portfolios?A?and?B?(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 1 decimal place.)

 ? ??Portfolio?A ?% ? ??Portfolio?B ?% ?

 b-1. If instead you could invest?only?in bills and?one?of these portfolios, calculate the sharpe measure for Portfolios?A?and?B.?(Round your answers to 2 decimal places.)

 ? ???Sharpe Measure ??Portfolio?A ?????? ??Portfolio?B ??????

b-2. Which portfolio would you choose?
? ?
?
 Portfolio A Portfolio B

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