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Page 14 of 14 Ntabeni also advises Sylvester Zvoushe, a RSA investor, who is considering the addition of high yield bonds to his portfolio. Based
Page 14 of 14 Ntabeni also advises Sylvester Zvoushe, a RSA investor, who is considering the addition of high yield bonds to his portfolio. Based on Ntabeni's research, RSA high yield bonds have an expected return of 5.7%, an expected standard deviation of 10.33%, and a predicted covariance with Zvoushe's portfolio of 0.08. Zvoushe's portfolio has a Sharpe ratio of 0.63 and a variance of 0.85. The risk-free rate is now 2.30%. f) Determine, based on the Sharpe ratio criterion, if Ntabeni should include RSA high yield bonds in Zvoushe's portfolio. Justify your response with one reason. Show your calculations. (4)
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