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Q6-RK only invests in a portfolio made up of Value Shares and Growth Shares. Assume that she always constructs her portfolio by investing in equal
Q6-RK only invests in a portfolio made up of Value Shares and Growth Shares. Assume that she always constructs her portfolio by investing in equal size in each portfolio (market value). The correlation of Value Shares and Growth Shares returns is equal to 0.6. Assume the risk-free rate is 3.5%. In addition, the portfolio has the following characteristics: Expected Return Volatility Value Shares .12 14% Growth Shares .15 24% 1. What is the expected return on RK's portfolio? (5 pts.) 2. Determine the risk of RK's portfolio. (10 pts.) 3. What is the Sharpe ratio for RK's investment? (10 pts.)
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