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Homework answers / question archive / A risky asset has an expected return of 18% and a standard deviation of returns of 21%
A risky asset has an expected return of 18% and a standard deviation of returns of 21%. If the risk- free rate is 5%, what is the Sharpe Ratio of a portfolio invested two-thirds in the risky asset and one- third in the risk-free asset? O 0.94 O 0.75 01.02 2.95 0.62
Answer-
Given
Expected return of risky asset = 18 %
Risk free rate = 5 %
Standard deviation of returns = 21 %
Sharpe's ratio = ( Expected return - Risk free rate) / Standard deviation of returns
Sharpe's ratio = (18 % - 5 % ) / 21 %
Sharpe's ratio = 13 % / 21 %
Sharpe's ratio = 0.619 ~ 0.62
Therefore the correct Option is last option 0.62