A portfolio consists of the following two funds:
$\begin{array}{lcr}
&\text { Fund A }& \text { Fund B }\
\text {\$ Invested } & \$ 12,000 & \$ 8,000 \
\text { Weight } & 60\% & 40\% \
\text { Exp Return } & 15\% & 12\% \
\text { Std Dev } & 24\% & 14\% \
\text { Beta } & 1.92 & 1.27 \
\text { Corr(A, B) } & .43 &\
\text { Riakfree rate }&3.60
\end{array}$
What is the Sharpe ratio of the portfolio?
A).422
B).581
C).645
D).721
E).798

Question

Quizplus · Accepted Answer

The Sharpe ratio is calculated as $(E(R_p) - R_f) / \sigma_p$, where $E(R_p)$ is the expected return of the portfolio, $R_f$ is the risk-free rate, and $\sigma_p$ is the standard deviation (risk) of the portfolio. First, calculate the expected return of the portfolio: $E(R_p) = 0.6(15\%) + 0.4(12\%) = 9\% + 4.8\% = 13.8\%$. The risk-free rate is given as 3.6%. To find the standard deviation of the portfolio, we need more information than provided (such as the covariance or a way to calculate the portfolio's total risk). However, assuming we had the standard deviation, we would then calculate the Sharpe ratio as $(13.8\% - 3.6\%)/\sigma_p$. Without the portfolio's standard deviation, we cannot directly calculate the Sharpe ratio, but the correct approach involves using the given formula and information. The choice provided does not match the calculation process due to missing steps, particularly in calculating the portfolio's standard deviation.

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)