Question: Consider the following UK stocks, which are constituents of the FTSE 100 index-Anglo American plc (AAL.L), Barclays plc (BARC.L), and BHP Billiton plc (BLT.L)-find and record their prices at the start and end of the most recent calendar year along with the amount of dividend paid. Assume that you invested the same amount in each of these stocks. Find the current risk-free rate (the three-month UK T-bill rate is a good proxy for the risk-free rate for a UK investor) and the market return (assume that the FTSE 100 is a good proxy for the market). Assume that the standard deviation of this portfolio is 15.6%, and the standard deviation of the market portfolio is 12%.
a. Calculate the return on the equally weighted portfolio for the year.
b. Calculate Sharpe's measure for both the portfolio and the market. Compare and discuss these values. On the basis of this measure, did the portfolio perform better or the market?
c. Calculate Treynor's measure for both the portfolio and the market and discuss which had a superior performance, the portfolio or the market?
d. Calculate Jensen's measure (Jensen's alpha) for both the portfolio and the market and discuss which had a superior performance, the portfolio or the market?
e. Compare, contrast, and discuss your analysis using the measures in parts b, c, and d. Evaluate the portfolio.