Question

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 rate of 4% The probability distribution of the risky funds is as follows: Expected Return 23% Standard Deviation 29% Stock fund (S) Bond fund (8) 14 17 The correlation between the fund returns is 0.12 What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Sharpe ratio

Answer 1

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OPTIMAL RISKY PORTFOLIC VC AMORT SINKING JORDAN - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum General A A Wrap Text Calibri 11 Fill Copy Conditional Format Formatting A Merge & Center Paste BIU S % Cell Insert Delete Format Sort & Find & 2 Clear Format Painter ble Styles er Select Cells Clipboard Font Alignment Number Shules Editing AH18 AG W X Y Z AA AB AC AD AE AF AH Al AJ AK 1 ElrS) 2 23 ophmad risky Prt folio E(rB)= 14 3 rf = 4 a (S) 5 29 E()-1 - E(A) -1f| Covc8,s) a (B) 6 17 0.12 7 r = 9 10 Afr ElMa)-favs9). cov(A,B) = 59.16 11 12 13 (AH2-AH4)*(AH6^2)- (AH3-AH4)*(AH11) 14 Ws 4899.4 (AH2-AH4) (AH6^2) + (AH3-AH4)*(AH5^2) - (AH2-AH4+AH3-AH4)*(AH11) 12185.36 15 16 stock fund 17 Ws= 0.4021 40.21% 59.79% 18 WB 0.5979 bond fund 19 14 H MIN VAR PORT BEST CAL BINOMIAL 2 TIME SINKING AMORTIZA Sheet2 VCJORDAN INSURANCE Sheet1 130% O Re erences 06:00 ENG 06-06-2019

OPTIMAL RISKY PORTFOLIC VC AMORT SINKING JORDAN - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins Cut Ea Copy - AutoSum General A A Wrap Text Calibri 11 Fill A Conditional Format Insert Delete Format Paste BIU Merge & Center S % Cell Sort & Find & Format Painter Clear ble Styles er Select Formatting Clipboard Font Alignment Number Shules Cells Editing AC37 W X Y Z AA AB AC AD AE AF AG AH AI AJ AK wa Cetnm return on portfolio: 22 E()= CEas) 23 24 (AA17 AH2) (AA18*AH3) 25 E(rp) 17.6187 % 26 E(rp) 17.6187% 27 variance of portfolio 28 2 2 2 29 30 CovCs,s 31 + 2.W, W2 32 33 02p (AA17A2)*(AH5A2) + (AA18^2)*(AH6^2) + 2*(AA17)*(AA18)*(AH11) 34 267.7259% 35 36 Standard deviation of portfolio sqrt(variance) 37 16.3623 % op 38 NO INTERMEDIATE ROUNDING IS DONE 39 (E(rp) -rf)/op (17.6187%- 4%)/16.3623% = Sheet2 VCJORDAN INSURANCE Sheet1 SHARPE RATIO 40 0.8323 14 H MIN VAR PORT BEST CAL BINOMIAL 2 TIME SINKING AMORTIZA 130% Re erences 06:01 E ENG 6-06-2019