Question
In: Finance
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 agoRelated Solutions
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