Question
All assets in the world are priced using the Capital Asset Pricing Model. A portfolio is composed of a risky asset and a risk-free asset.
All assets in the world are priced using the Capital Asset Pricing Model. A portfolio is composed of a risky asset and a risk-free asset. You have collected the following information:
| Amount invested in risky asset | $640.00 |
| Amount invested in risk-free asset | $160.00 |
| Expected market return | 10.00% |
| Expected risk free return | 2.00% |
|
| Returns | ||
| Year | Risky-Asset | Risk-free Asset | Market |
| 1 | 25.00% | 2.00% | 10.00% |
| 2 | 0.00% | 2.00% | 0.00% |
| 3 | -25.00% | 2.00% | -10.00% |
Based on this information, what is the Sharpe ratio of this portfolio?
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Practical Financial Management
Authors: William R. Lasher
7th edition
128560721X, 9781133593669, 1133593682, 9781285607214, 978-1133593683
