18. Optimal Sharpe Portfolio Value-at-Risk (LO3, CFA6) You are constructing a portfolio of two assets, Asset A
Question:
18. Optimal Sharpe Portfolio Value-at-Risk (LO3, CFA6) You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 12 percent and 15 percent, respectively. The standard deviations of the assets are 29 percent and 48 percent, respectively.
The correlation between the two assets is .25 and the risk-free rate is 5 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent?
Answer Problems 19 through 21 based on the following information.
You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is .97.
Year Fund Market Risk-Free 2015 −15.2% −24.5% 1%
2016 25.1 19.5 3 2017 12.4 9.4 2 2018 6.2 7.6 4 2019 −1.2 −2.2 2
Step by Step Answer:
Fundamentals Of Investments Valuation And Management
ISBN: 9781260013979
9th Edition
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin