A portfolio manager summarizes the input from the macro and micro forecasters in the following table:
| Macro Forecasts |
| Asset |
Expected Return (%) |
Beta |
Residual Standard Deviation (%) |
| Stock A |
|
21 |
|
1.1 |
|
60 |
|
| Stock B |
|
14 |
|
1.5 |
|
72 |
|
| Stock C |
|
12 |
|
0.6 |
|
63 |
|
| Stock D |
|
10 |
|
0.9 |
|
53 |
|
|
| Macro Forecasts |
| Asset |
Expected Return (%) |
Standard Deviation (%) |
| T-bills |
|
6 |
|
|
0 |
|
| Passive equity portfolio |
|
12 |
|
|
18 |
Calculate the following 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? (Do not round intermediate calculations. Enter your answer as decimals rounded to 4 places.
Cost of restriction _______??
b. What is the utility loss to the investor (A = 2.6) given his new complete portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)