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We expect to have our stock portfolio to return 12% next year. If returns on risk free T-bills are 3.5% and our portfolio has 6%

We expect to have our stock portfolio to return 12% next year. If returns on risk free T-bills are 3.5% and our portfolio has 6% standard deviation.

a) What is the Sharpe ratio?

b) If a stock portfolio A has a Sharpe ratio of 1.3 and alternative stock portfolio of B (has the same expected return as A) has a Sharpe ratio of 1.7, which one should you invest in?

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