A respected analyst forecasts that the return of the market index over the coming year will be 15%. The one-year T-bill rate is 3%. Examination of recent returns of the S&P 500 Index suggests that the standard deviation of returns will be 20%.

a. What does this information suggest about the degree of risk aversion of the average investor, assuming that the average portfolio resembles the market index?

b. What is the Sharpe Ratio?