Use the following information to answer the question(s)below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio): growth stocks and value stocks.Assume that these two portfolios are equal in size (market value),the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics: The risk free rate is 3.5%.
-The Sharpe ratio for the market (which is a 50-50 combination of the value and growth portfolios)portfolio is closest to:
A).53
B).58
C).61
D).79

Question

Use the following information to answer the question(s)below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio): growth stocks and value stocks.Assume that these two portfolios are equal in size (market value),the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics:  The risk free rate is 3.5%.
-The Sharpe ratio for the market (which is a 50-50 combination of the value and growth portfolios)portfolio is closest to:
A).53 
B).58 
C).61 
D).79

Quizplus · Accepted Answer

B)expected return = .50(12%)+ .50(15%)= 13.5% σ_p² = x₁² [(SD(R₁))]² + x₂² [(SD(R₂))]² + 2x₁x₂ Corr(R₁,R₂)SD(R₁)SD(R₂) = [(.5)]² [(.14)]² + [(.5)]²[(.24)]² + 2(.5)(.5)(.6)... Sharpe Ratio = 11ea7cce_3d2f_5236_928c_2786fb7fe1b1_TB1626_11 = 11ea7cce_3d2f_5237_928c_475b384f1cf6_TB1626_11 = 0.583410

Use the Following Information to Answer the Question(s)below