Question

Need a help please. Thank you.

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.7%. The probability distributions of the risky funds are: Expected Return Stock fund (S) Bond fund (B) Standard Deviation 37% 31% 17% 8% The correlation between the fund returns is 0.1065. What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Sharpe ratio

Answer 1

Sharpe Ratio=(Return of portfolio-risk free return)/Standard deviation of Portfolio's excess return

Sharpe Ratio of Stock fund= (17-4.7)/37*100= 33.2432%

Sharpe ration of bond fund= (8-4.7)/31*100=10.6452%