Bonus 1 (3′): Using standard deviation as x-axis, and expect…

Bonus 1 (3′): Using standard deviation as x-axis, and expected return as y-axis, Draw 1), Markowitz efficient frontier for risky assets. 2), the best feasible CAL to connect the risk free assets and the portfolio on the efficient frontier. 3), Point out the optimal portfolio on the efficient frontier.

2. (5′) Two investment advisers are comparing performance. O…

2. (5′) Two investment advisers are comparing performance. One averaged a 19% return and the other a 18% return. However, the beta of the first adviser was 1.5, while that of the second was 1.2.  a. Can you tell which adviser was a better selector of individual stocks (aside from the issue of general movements in the market)? Why? b. If the T-bill rate were 5% and the market return during the period were 15%, calculate Jensen’s Alpha. Point out whether these two investments are underpriced or overpriced. Which adviser would be the superior stock selector?