Recalculate problem 4 for a po

Recalculate problem 4 for a portfolio manager who is not allowed to short-sell securities.

a. What is the cost of the restriction in terms of Sharpe’s measure and M2?

b. What is the utility loss to the investor (A = 2.8) given his new complete portfolio?

Problem 4

A portfolio manager summarizes the input from the macro and micro forecasters in the following table:

a. Calculate expected excess returns, alpha values, and residual variances for these stocks.

b. Construct the optimal risky portfolio.

c. What is Sharpe’s measure for the optimal portfolio and how much of it is contributed by the active portfolio? What is the M2 ?

d. What should be the exact makeup of the complete portfolio for an investor with a coefficient of risk aversion of 2.8?

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