Using Table 5.3 as your guide. (All returns in this problem are in annual term.) Estimate the Sharpe Ratio of the stock market portfolio and the Sharpe Ratio of the T-Bonds. Hints: Assume that market risk premium and market volatility are constant over time. The same for T-Bonds.

Market Sharpe Ratio =

T-Bond Sharpe Ratio =

TABLE 5.3 Risk and return of investments in major asset classes, 19272016 T-bills T-bonds Stocks Arithmetic average Risk premium Standard deviation max min 3.42 N/A 3.14 14.71 -0.02 5.51 2.08 8.14 38.07 -8.47 11.91 8.48 19.99 56.38 -43.73