Question

For this quiz, consider the risk free rate to be 0.76% and the return on the SP500 8.06%. Also, use the following table to answer some of the questions: Instructions Fund Return (%) STD (%) Beta R-squared U.S. Core 7.6 10.32 0.91 89 Small Cap 12.29 0.76 9.42 93 Not allowed. This test can only be taken once. Multiple Attempts This test can be saved and resumed late. Force Completion Question Completion Status: QUESTION 1 2 points Save Answer Calculate the Sharpe ratio for the U.S. Core portfolio, use the risk free rate and SP500 return shown in the beginning of the quiz. QUESTION 2 2 points Save Answer Calculate the Sharpe ratio for the Small Cap portfolio, use the risk free rate and the SP500 return shown at the beginning of the quiz. QUESTION 3 3 points Save Answer calculate alpha for the U.S. Core portfolio. Use the risk free rate and the SP500 return presented t the begining of the quiz.

Answer 1

1. Expected Return using CAPM method =Risk Free Rate+ Beta*(Market return - Risk Free rate) =0.76% +0.91*(8.06%-0.76%) =7.40%
Sharpe ratio of US core Portfolio =(Expected Return - Risk free Rate)/Standard Deviation =(7.40%-0.76%)/10.32% =0.6434 or 0.64

2. Expected Return using CAPM method =Risk Free Rate+ Beta*(Market return - Risk Free rate) =0.76% +0.76*(8.06%-0.76%) =6.31%
Sharpe ratio of small cap =(Expected Return - Risk free Rate)/Standard Deviation =(6.31%-0.76%)/12.29% =0.4514 or 0.45

3. Alpha of US Core Portfolio =Actual return - Expected Return =7.6% -7.40% =0.20%