Question

In: Finance

Sharpe ratio of portfolio A and B are 0.40 and 0.52 respectively. Therefore, CAL(A) is _________...

Sharpe ratio of portfolio A and B are 0.40 and 0.52 respectively. Therefore, CAL(A) is _________ than CAL(B).
Select one:
a. Larger
b. Steeper
c. Smaller
d. Flatter

Solutions

Expert Solution

Answer-

The correct Option is d. Flatter

As the sharpe ratio is lower the Capital Allocation Line (CAL) is flatter. As Sharpe ratio is higher the more steeper the CAL. As sharpe ratio of A (0.40)  is lower than B ( 0.52) therefore it has flatter CAL.

The other options a, b and c are incorrect.


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