Question

An actively managed portfolio has a transfer coefficient(TC) of 0.5 and an unconstrained information ratio of 0.30. The benchmark portfolio has a Sharpe ratio of 0.4 and a risk of 16%.
Required.
a) The optimal amount of aggressiveness in the actively manages portfolio
b) The Sharpe ratio assuming that the actively managed portfolio is constructed with the amount of active risk.
c) Determine how the active risk can be lowered to the optimal level of 6% assuming that the constrained portfolio has an active risk of 8%

2. If the actively managed fund has an information ratio of 0.2 and an active risk of 9%. while the benchmark portfolio has a Sharpe ratio of 0.4 and a total risk of 12%. If a portfolio P with an optimal level of active risk, can be constructed by combining the actively managed fund and the benchmark portfolio.
Required
I) Calculate portfolio P's Sharpe ratio
2) Determine the proportion of benchmark and actively managed fund forming portfolio P.

Answer 1

the concept of sharpe ratio suggest that risk and reward with the use of the standard deviation...

risk adjusted return is more preferable....

higher the share ratio with low risk adjusted ratio is considered as best option to be deal with.

to lower the optimal risk to 6% a portfolio manager has to more focus on risk free investments like treasurary bills which is considered as a risk free assets......compared to equity and debentures.

2.here information ratio is given which suggest a skill of portfolio manager to generate return more than the benchmark index....higher the IR higher the return to the investor.

if the sharpe ratio is higher with the low risk ratio would be the best combination for P s portfolio