Superior Fund has a Sharpe ratio of 0.50 and a standard deviation of 20%, and a client of yours has invested 40% of her investment budget in Superior and the rest in a riskfree asset earning 2%. Stupendous Fund has a Sharpe ratio of 0.48 and an expected return of 14%. If Superior Fund were to go out of business, how could your client use the Stupendous Fund (along with the risk free asset) to earn the same expected return as before, and what standard deviation would she face?

Final answers: Invest 33.333% in Stupendous, 66.667% in the risk-free, and face a standard deviation of 8.33%.