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7 February, 15:27

Consider the following information: Portfolio Expected Return Standard Deviation Risk-free 7 % 0 % Market 12.2 31 A 11.0 20 a. Calculate the Sharpe ratios for the market portfolio and portfolio A

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  1. 7 February, 18:56
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    The Sharpe ratios for the market portfolio and portfolio A is 0.1677 and 0.2 respectively

    Explanation:

    The computation of the Sharpe ratio is shown below:

    = (Expected Rate of Return - Risk-free rate of return) : (Standard Deviation)

    For Market portfolio, it would be

    = (12.2% - 7%) : (31%)

    = 5.2% : 31%

    = 0.1677

    For portfolio A, it would be

    = (11% - 7%) : (20%)

    = 4% : 20%

    = 0.20

    Simply we apply the Sharpe ratio formula in which the risk-free rate of return is deducted from the expected return and the same is divided by the Standard Deviation
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