A risky asset has an expected return of 18% and a standard deviation of returns of 21%

Finance Dec 25, 2020

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

Expert Solution

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

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