P13.11 Niki’s portfolio earned a return of 11.8% during the year just ended. The portfolio’s standard deviation of return was 14.1%. The risk-free rate is currently 6.2%. During the year, the return on the market portfolio was 9.0% and its standard deviation was 9.4%.

a. Calculate Sharpe’s measure for Niki’s portfolio for the year just ended.

b. Compare the performance of Niki’s portfolio found in part a to that of Henry’s portfolio, which has a Sharpe’s measure of 0.43. Which portfolio performed better?

Why?

c. Calculate Sharpe’s measure for the market portfolio for the year just ended.

d. Use your findings in parts a and c to discuss the performance of Niki’s portfolio relative to the market during the year just ended.