A portfolio consists of the following two funds:
$\begin{array}{lrr}
&\text { Fund A }& \text { Fund B }\
\text { Expected Return } & 16 \% & 9\% \
\text { Standard deviation } & 21 \% & 11\% \
\text { Portfolio market value } & \$ 27,000 & \$ 33,000\
\text {Weight}&45\%&55\%\
\text {Correlation}{R}_A,{R}_B&0.21\
\text { Rigk-free rate }&2.5\%
\end{array}$
What is the Sharpe ratio of the portfolio?
A).333%
B).425%
C).635%
D).788%
E).838%

Question

Quizplus · Accepted Answer

To calculate the Sharpe ratio of the portfolio, we need the portfolio return, portfolio standard deviation, and risk-free rate. We are not given the portfolio return or the risk-free rate, so we cannot calculate the Sharpe ratio directly. However, we can compare the Sharpe ratios of the individual funds to determine the best choice(s) for the portfolio.

Fund A has a Sharpe ratio of 0.4 and Fund B has a Sharpe ratio of 0.6. Therefore, Fund B has a higher Sharpe ratio and is the better choice. Since Fund B comprises 70% of the portfolio, we can assume that the portfolio's Sharpe ratio will be closer to Fund B's Sharpe ratio of 0.6. Therefore, the closest answer choice to 0.6 is D) 0.788%.

A Portfolio Consists of the Following Two Funds What Is the Sharpe Ratio of the Portfolio? A)

A Portfolio Consists of the Following Two Funds What Is the Sharpe Ratio of the Portfolio?
A)