Consider a market as described in the table below. Asset Sharperatio Alpha/IdiosyncraticVolatility X 0.60 0.12 Y 0.40
Question:
Consider a market as described in the table below.
Asset
Sharpe ratio
Alpha/Idiosyncratic Volatility
X
0.60
0.12
Y
0.40
-0.12
All others
0.79
0.00
M
0.80
0.00
"Market" refers to the value-weighted aggregate portfolio of all risky assets. "All others" refer to the value-weighted portfolio of all other risky assets in the market except for assets X and Y. Which statement below is true regarding the highest Sharpe ratio that a risk-averse investor with the typical mean-variance preference of investments could obtain? Please round your calculation to the nearest 2nd decimal.
a.
The highest obtainable Sharpe ratio is 0.82, through holding a portfolio of M, X and Y
b.
The highest obtainable Sharpe ratio is 1.04, through holding a portfolio of M, X and Y
c.
The highest obtainable Sharpe ratio is 0.81, through holding a portfolio of M and X
d.
The highest obtainable Sharpe ratio is 0.92, through holding a portfolio of M and X
e.
The highest obtainable Sharpe ratio is 0.8, through holding M
Understanding Basic Statistics
ISBN: 9781111827021
6th Edition
Authors: Charles Henry Brase, Corrinne Pellillo Brase