solution to practice final exam

# solution to practice final exam - 1 a The Sharpe Ratios of...

This preview shows pages 1–2. Sign up to view the full content.

SH FT = E ( R FT ) r F FT = 0 : 19 & 0 : 05 0 : 25 = 0 : 56 SH FT = E ( R M ) r F M = 0 : 10 & 0 : 05 0 : 20 = 0 : 25 A±s conclusion. b) To compute the M measure of the Fund±s peformance, we compute the portfolio, R P , of the fund and the risk free rate that has the same standard deviation as the market, i.e. E ( R P ) = !E ( R FT ) + (1 ! ) r f p = FT Therefore, p = M implies ! = 0 : 20 = 0 : 25 = 0 : 8 . The expected return on the portfolio is E ( R P ) = 0 : 8 ± 0 : 19 + 0 : 2 ± 0 : 05 = 0 : 162 Hence, the M measure of performance is M = E ( R P ) E ( R M ) = 0 : 062 2. An equally-weighted portfolio of the two stocks is E ( R P ) = 0 : 5 R PNC + 0 : 5 R W Therefore, it±s variance is V ar ( R P ) = 0 : 5 2 V ar ( R PNC ) + 0 : 5 2 V ar ( R W ) + 2 ± 0 : 5 ± 0 : 5 ± Cov ( R PNC ;R W ) 0 : 0125 = 0 : 25 ± 0 : 36 + 0 : 25 ± 0 : 09 + 0 : 5 ± Cov ( R PNC ;R W

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 01/20/2012 for the course INVESTMENT 101 taught by Professor Unknown during the Spring '08 term at Carnegie Mellon.

### Page1 / 3

solution to practice final exam - 1 a The Sharpe Ratios of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online