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...








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:






















PortfolioActual Avg. ReturnStandard DeviationBeta
Manager Y10.20%12.00%1.20
Manager Z8.80%9.90%0.80







Additionally, your estimate for the risk premium for the market portfolio is 5.00 percent and the risk-free rate is currently 4.50 percent.







a. For both Manager Y and Manager Z, calculate the expected return using the CAPM. Express your answers to the nearest basis point (xx.xx percent).







b. Calculate each fund manager's average "alpha" (actual return minus expected return) over the five-year holding period. Show graphically where these alpha statistics would plot on the security market line (SML).







c. Explain whether you can conclude from the information in part (b) if (I) either man­ager outperformed the other on a risk-adjusted basis, and (2) either manager outper­formed market expectations in general.


Jun 07, 2022
SOLUTION.PDF
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here
Have files?