ECO358_L12S.pdf

# Robert j mckeown u of t eco358 week twelve term test

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Robert J. McKeown (U of T) ECO358 Week Twelve

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Term Test Two Term Test Two Question 1b The Sharpe ratio partly captures the risk-return dominance argument. When the tangency portfolio is combined with the risk-free rate, every risk-averse investor will prefer the capital allocation line to any other feasible portfolio. CAPM’s SML and equation was derived using this idea. Robert J. McKeown (U of T) ECO358 Week Twelve
Term Test Two Table: Questions 1c-1e Active Portfolios Z-Portfolio with zero net invest- ment Treynor-Black Procedure Port- folio Alpha Residual Standard Deviation Information Ratio TB Weight w 0 ( b a = 1) Sharpe Ratio 1 1% 4% 0.25 1.04 0.65 2 1% 3% 0.33 1.85 0.69 3 1% 2% 0.50 4.17 0.78 4 1% 1% 1.00 16.67 1.17 5 2% 4% 0.50 2.08 0.78 6 2% 10% 0.20 0.33 0.63 Question 1c was generally well done. For Question 1d, the table above was provided to help you. Robert J. McKeown (U of T) ECO358 Week Twelve

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Term Test Two Table: Questions 1c-1e Active Portfolios Z-Portfolio with zero net invest- ment Treynor-Black Procedure Port- folio Alpha Residual Standard Deviation Information Ratio TB Weight w 0 ( b a = 1) Sharpe Ratio Di . 1 1% 4% 0.25 1.04 0.65 0.39 2 1% 3% 0.33 1.85 0.69 0.36 3 1% 2% 0.50 4.17 0.78 0.28 4 1% 1% 1.00 16.67 1.17 0.17 5 2% 4% 0.50 2.08 0.78 0.28 6 2% 10% 0.20 0.33 0.63 0.43 Robert J. McKeown (U of T) ECO358 Week Twelve
Term Test Two Table: Questions 1c-1e Active Portfolios Z-Portfolio with zero net invest- ment Treynor-Black Procedure Port- folio Alpha Residual Standard Deviation Information Ratio TB Weight w 0 ( b a = 1) Sharpe Ratio Di . 1 1% 4% 0.25 1.04 0.65 0.39 2 1% 3% 0.33 1.85 0.69 0.36 3 1% 2% 0.50 4.17 0.78 0.28 4 1% 1% 1.00 16.67 1.17 0.17 5 2% 4% 0.50 2.08 0.78 0.28 6 2% 10% 0.20 0.33 0.63 0.43 Robert J. McKeown (U of T) ECO358 Week Twelve

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Term Test Two Table: Questions 1c-1e Active Portfolios Z-Portfolio with zero net invest- ment Treynor-Black Procedure Port- folio Alpha Residual Standard Deviation Information Ratio TB Weight w 0 ( b a = 1) Sharpe Ratio 5 2% 4% 0.50 2.08 0.78 Q1e: find the expected return – planned to be the hardest question on test 2. You must apply what you learned about TB. Robert J. McKeown (U of T) ECO358 Week Twelve
Term Test Two Table: Questions 1c-1e Active Portfolios Z-Portfolio with zero net invest- ment Treynor-Black Procedure Port- folio Alpha Residual Standard Deviation Information Ratio TB Weight w 0 ( b a = 1) Sharpe Ratio 5 2% 4% 0.50 2.08 0.78 You are told the beta of the active portfolio is 1. The TB procedure weights between an active alpha portfolio and a passive market index.
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• Summer '14
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