Question

A portfolio consists of the following two funds. Fund A Fund B $ Invested $ 12,000 $ 8,000 Weight 60 % 40 % Exp Return 15 % 12 % Std Dev 24 % 14 % Beta 1.92 1.27 Corr(A,B) 0.43 Riskfree rate 3.6 % What is the Sharpe ratio of the portfolio?

Answer 1

Sharpen Ratio = Rp - Rf

standard deviation of portfolio

= 13.8% - 3.6%

173.11%

= 0.05892

= 0.059

workings

Return of portfolio = Ra*wa + Rb*Wb

= 15%*0.6 + 12%*0.4

= 9% + 4.8% = 13.8%

Standard deviation of portfolio = square root of variance

= √ stdA²wa² + stadB²wb² + 2wawbcorrAB

= √(24%*0.6)² +(14%*0.4)² + 2*0.6*0.4*1.27

= √207.36% + 31.36% + 0.6096

= √2.9968

= 1.73

= 173.11%

Step-by-step explanation: