The expected return of Security A is 12 percent with a standard deviation of 15 percent.The expected return of Security B is 9 percent with a standard deviation of 10 percent.Securities A and B have a correlation of 0.4.The market return is 11 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.Which one of the following is not an efficient portfolio,as determined by the lowest Sharpe ratio?
A) 100% invested in A is efficient
B) 100% invested in B is efficient
C) 41% in A and 59% B is efficient
D) 59% in A and 41% B is efficient

Question

Quizplus · Accepted Answer

Use the market's Sharpe ratio to compare the Sharpe ratio of each portfolio and find the lowest Sharpe ratio 11ea8229_34ca_8945_bbd8_45e96fe94d8f_TB1726_11 is the market Sharpe ratio.The Sharpe ratio for A: 11ea8229_34ca_8946_bbd8_b7ff86363257_TB1726_11 The Sharpe ratio for B: 11ea8229_34ca_b057_bbd8_33dfdb3b83a3_TB1726_11 The Sharpe ratio for C: 11ea8229_34ca_b058_bbd8_e97d9d6c27d4_TB1726_11 The Sharpe ratio for D: 11ea8229_34ca_d769_bbd8_1bab0e3c7143_TB1726_11

The Expected Return of Security a Is 12 Percent with a Standard