Assume you have two investment opportunities.

1. Corporate Disasters (CD) has expected returns (_CD) = 4% and standard deviation of

   returns 9%.

2. Nevada beach front properties (NBF) has expected returns (_NBF) = 10% and standard

   deviation of returns 18%

Risk free rate is R_f = 1%.

1. a) Calculate Sharpe ratios of these two portfolios.

2. b) Assume you can invest only in one of those companies (and a risk free rate). Assume

   your target rate of return is 6%. Calculate portfolios with CD&RF and NBF&RF which

   would deliver this return. Which portfolio has smaller standard deviation and why?

3. c) Assume you have a portfolio which is not efficient. Assume Corporate Disasters have

   market beta of _CD = 0.5 and Nevada beach front properties have market beta _NBF = 4. Calculate Treynor measures for those securities. Which one should you add to

   your portfolio to increase the Sharpe ratio.