1) Development of two drugs Suppose there is two drug compounds A and B that has potential to slow the growth of cancer cells. The expected returns of the two drugs are 0.15 and 0.25 respectively. The standard deviations are 4 and 5 respectively. Assume risk free rate is 0. a. What is the Sharpe ratio of investing in A? What is the Sharpe ratio of investing in B? b. Assume the successes of the two drug developments are independent. What is the expected returns of an investment in a portfolio that invests half in the development of drug A and half in the development of drug B? What is the standard deviation? What is the Sharpe ratio? c. How has the Sharpe ratio changed from investing in A or B to investing in the portfolio? Why? d. Now assume the successes of the two drug developments are positively correlated at 0.3. What is the expected return of an investment in the megafund now? What is the standard deviation? What is the Sharpe ratio? e. Why has the standard deviation changed from (b) to (d)? Is it still worthwhile to invest in the portfolio rather than the individual drugs when the correlation is 0.3? e. f. Now assume there are 100 drug compounds. All of them are uncorrelated. Their expected returns are 0.15 and the standard deviation is 4. What is the expected return of investing in a cancer megafund with equal weight in each drug? What is the standard deviation? What is the Sharpe ratio now? 1) Development of two drugs Suppose there is two drug compounds A and B that has potential to slow the growth of cancer cells. The expected returns of the two drugs are 0.15 and 0.25 respectively. The standard deviations are 4 and 5 respectively. Assume risk free rate is 0. a. What is the Sharpe ratio of investing in A? What is the Sharpe ratio of investing in B? b. Assume the successes of the two drug developments are independent. What is the expected returns of an investment in a portfolio that invests half in the development of drug A and half in the development of drug B? What is the standard deviation? What is the Sharpe ratio? c. How has the Sharpe ratio changed from investing in A or B to investing in the portfolio? Why? d. Now assume the successes of the two drug developments are positively correlated at 0.3. What is the expected return of an investment in the megafund now? What is the standard deviation? What is the Sharpe ratio? e. Why has the standard deviation changed from (b) to (d)? Is it still worthwhile to invest in the portfolio rather than the individual drugs when the correlation is 0.3? e. f. Now assume there are 100 drug compounds. All of them are uncorrelated. Their expected returns are 0.15 and the standard deviation is 4. What is the expected return of investing in a cancer megafund with equal weight in each drug? What is the standard deviation? What is the Sharpe ratio now