The Optima Mutual Fund has an expected return of 19.5% and a volatility of 20.4%. Optima claims

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The Optima Mutual Fund has an expected return of 19.5% and a volatility of 20.4%. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 5.5%.

a. What is Optima’s Sharpe Ratio?

b. If eBay’s stock has a volatility of 37.8% and an expected return of 9.3%, what must be its correlation with the Optima Fund?

c. If the SubOptima Fund has a correlation of 85% with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund?

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Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Feb 29, 2024 04:01 AM

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The Optima Mutual Fund has an expected return of 19.5% and a volatility of 20.4%. Optima claims

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a The Sharpe Ratio is calculated as the excess return of the portfolio over the riskfree rate divide...View the full answer

Corporate Finance The Core

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