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The Optima Mutual Fund has an expected return of 20.5 % and a volatility of 19.7 %. Optima claims that no other portfolio offers a

The Optima Mutual Fund has an expected return of 20.5 % and a volatility of 19.7 %. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 5.8 %.

a. What is Optima's Sharpe ratio? calculate.

b. If eBay's stock has a volatility of 36.2 % and an expected return of 9.4 %, what must be its correlation with the Optima Fund? calculate.

c. If the SubOptima Fund has a correlation of 85 % with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund? calculate.

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