The Optima Mutual Fund has an expected return of 19.1%, and a volatility of 21.5%. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 4.7%.

a. What is Optima’s Sharpe Ratio?

b. If eBay’s stock has a volatility of 38.9% 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 77% with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund?

AppendixLO1