Question

Table below shows the historical returns for Companies A, B and C

Year	Company A	Company B	Company C
1	30%	26%	47%
2	7%	15%	-54%
3	18%	-14%	15%
4	-22%	-15%	7%
5	-14%	2%	-28%
6	10%	-18%	40%
7	26%	42%	17%
8	-10%	30%	-23%
9	-3%	-32%	-4%
10	38%	28%	75%
11	27.0%	23.4%	42.3%
12	6.3%	13.5%	-48.6%
13	16.2%	-12.6%	13.5%
14	-19.8%	-13.5%	6.3%
15	-12.6%	1.8%	-25.2%
16	9.0%	-16.2%	36.0%
17	23.4%	37.8%	15.3%
18	-9.0%	27.0%	-20.7%
19	-2.7%	-28.8%	-3.6%
20	34.2%	25.2%	67.5%

1. If one investor has a portfolio consisting of 70% Company A and 30% Company B, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk- free rate is 3.5%?

2.If another investor has a portfolio consisting of 1/3 Company A, 1/3 Company B and 1/3 Company C, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk-free rate is 3.5%? 


Answer 1

portfolio average return is calculated using weighted average of individual average returns of investments in portfolio .

portfolio standard deviation is calculated using covariance between company A and company B and company C returns.