Final answer:
The question is about choosing an investment based on its Sharpe ratio by comparing the expected returns relative to their risks, considering a risk-free rate of 1%. The asset with the highest Sharpe ratio is the most desirable.
Step-by-step explanation:
The selection of an asset based on the Sharpe ratio, a measure used in finance to assess the performance of an investment by adjusting for its risk. The Sharpe ratio is calculated by subtracting the risk-free rate from the mean return of the investment and dividing the result by the standard deviation of the investment's excess return, essentially providing a measure of reward relative to risk.
To find the asset with the highest Sharpe ratio, each asset's expected return should be compared to its risk (standard deviation), with the consideration of the given risk-free rate of 1%. The asset with the greatest Sharpe ratio is considered the most desirable as it indicates a higher return for every unit of risk taken. When assets are uncorrelated, as stated, their individual Sharpe ratios can be assessed independently to select the best investment.