Question
The Optima Mutual Fund has an expected return of 20.5% and a volatility of 20.4%. Optima claims that no other portfolio offers a higher Sharpe
The Optima Mutual Fund has an expected return of 20.5% and a volatility of 20.4%. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 5.4%.
a. What is Optima's Sharpe ratio?
b. If eBay's stock has a volatility of 40.3% and an expected return of 10.3%, what must be its correlation with the Optima Fund?
c. If the SubOptima Fund has a correlation of 81% with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund?
Round answers to three decimal places.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
