Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A portfolio with a 15% standard deviation generated a return of 5% last year when risk free T-bills were paying 1%. You are considering adding

A portfolio with a 15% standard deviation generated a return of 5% last year when risk free T-bills were paying 1%. You are considering adding one more stock to your portfolio, the stock will boost the portfolios expected return to 15% while also increases the standard deviation to 30%. If you are interested in the best risk versus return trade-off, should you add the stock?

A. Yes because it increases the portfolio's Sharpe ratio to 0.50

B. Yes because it increases portfolio's Sharpe ratio to 0.467

C. Yes because it increases portfolio's return to 15%.

D. No because it increases the risk of the portfolio

E. No because it decreases the portfolio's sharpe ratio to 0.267

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

World Finance Since 1914

Authors: Paul Einzig

1st Edition

0415539471, 978-0415539470

More Books

Students also viewed these Finance questions

Question

Why are we so vulnerable to believing untruths?

Answered: 1 week ago

Question

Differentiate 3sin(9x+2x)

Answered: 1 week ago

Question

Compute the derivative f(x)=(x-a)(x-b)

Answered: 1 week ago