Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Rp - RF The Sharpe ratio is a measure that allows one to compare two portfolios. It is given by where Rp is the expected

image text in transcribed

Rp - RF The Sharpe ratio is a measure that allows one to compare two portfolios. It is given by where Rp is the expected return on the portfolio, RF is the risk-free rate and op is the standard deviation of the portfolio returns. A larger Sharpe ratio is often considered a marker of a better portfolio Op For example, if two portfolios have the same return then the one with the smaller standard deviation will have a larger Sharpe ratio. Alternatively, if two portfolios have the same standard deviation then the one with the larger return will have a larger Sharpe ratio. You are an investor and own a portfolio consisting of 2 stocks. The percentage of the portfolio that is invested in the first stock is 31% and the percentage of the portfolio that is invested in the second stock is 69%. The risk-free rate is 1.91%, the expected return for the first stock is 9.85% and the expected return for the second stock is 8.95%. The standard deviation of the first stock is 11.76% and the standard deviation of the second stock is 11.61%. The correlation between the stocks is - 47.00% What is the expected return on the portfolio? Write as a percentage to two decimal places%. What is the variance of the portfolio? Write the answer as a number to four decimal places What is the standard deviation of the portfolio Write the answer as a percentage to two decimal places % What is the Sharpe Ratio for this portfolio? Write as a percentage to two decimal places %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Enterprise Applications And Services In The Finance Industry

Authors: Artur Lugmayr

1st Edition

331928150X,3319281518

More Books

Students also viewed these Finance questions