Suppose you are allocating your wealth between a risky asset, which has expected return of 0.075...

Suppose you are allocating your wealth between a risky asset, which has expected return of 0.075 and standard deviation of 0.1 and a risk-free asset, which has expected return of 0.045. You want to equally divide your wealth between the risky and the risk-free asset. What would be the Sharpe Ratio on your complete portfolio?

		0.2372
		0.3000
		0.7500
		0.0949

Solutions

Expert Solution

Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate.

The formula for calculating the Sharpe ratio is {R (p) – R (f)} /s (p)

Where

R (p): Portfolio return (Given in Question =0.075)

R (f): Risk free rate of return (Given in Question =0.045)

s (p): Standard deviation of the portfolio (Given in Question =0.1)

Sharpe Ratio=(0.075-0.045)/0.1=0.300

Option B is correct answer

jeff jeffy answered 2 years ago

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