Problem 3: Evaluating portfolio performance Assume you have two investment opportunities. 1. Corporate Disasters (CD) has expected returns (RCD) = 4% and standard deviation of returns 9%. 2. Nevada beach front properties (NBF) has expected returns ERNBF) = 10% and standard deviation of returns 18% Risk free rate is R = 1%. a) Calculate Sharpe ratios of these two portfolios. 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? c) Assume you have a portfolio which is not efficient. Assume Corporate Disasters have market beta of Bcp = 0.5 and Nevada beach front properties have market beta BNSF = 4. Calculate Treynor measures for those securities. Which one should you add to your portfolio to increase the Sharpe ratio