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7 July, 23:51

A portfolio consists of the following two funds. Fund A Fund B $ Invested $ 12,000 $ 8,000 Weight 60 % 40 % Exp Return 15 % 12 % Std Dev 24 % 14 % Beta 1.92 1.27 Corr (A, B) 0.43 Riskfree rate 3.6 % What is the Sharpe ratio of the portfolio?

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  1. 8 July, 03:38
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    Sharpen Ratio = Rp - Rf

    standard deviation of portfolio

    = 13.8% - 3.6%

    173.11%

    = 0.05892

    = 0.059

    workings

    Return of portfolio = Ra*wa + Rb*Wb

    = 15%*0.6 + 12%*0.4

    = 9% + 4.8% = 13.8%

    Standard deviation of portfolio = square root of variance

    = √ stdA²wa² + stadB²wb² + 2wawbcorrAB

    = √ (24%*0.6) ² + (14%*0.4) ² + 2*0.6*0.4*1.27

    = √207.36% + 31.36% + 0.6096

    = √2.9968

    = 1.73

    = 173.11%
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