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Homework answers / question archive / You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 38%
You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 38%. The T-bill rate is 6%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a T-bill money market fund. What is the reward-to-volatility (Sharpe) ratio (S) of your risky portfolio? Your client’s? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Expected return on client = Weight of you * return of you+ (Weight of client)*Return of cleint
=0.85*0.17+0.15*0.06
Expected return = 0.1535
IT is straight to find the standard deviation of client = Weight of You * standard deviation = 0.85*0.38 = 0.323
Sharpe ratio of you = Return - Risk freerate / Standard deviation = 17-6 / 38 = 0.2895
Sharpe ratio of client = Return - Risk freerate / Standard deviation = 15.35-6 / 32.3 = 0.2895
