Question

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.9%. The probability distributions of the risky funds are:

	Expected Return	Standard Deviation
Stock fund (S)	10%	39%
Bond fund (B)	5%	33%

The correlation between the fund returns is 0.0030.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Answer 1

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Sharpe ratio of the best feasible CAL is= 0.1308 {i.e (F24-B5)/F31}