question archive Stock A has an expected return of 18% and a standard deviation of 38%
Stock A has an expected return of 18% and a standard deviation of 38%
Subject:FinancePrice:4.86 Bought40
Stock A has an expected return of 18% and a standard deviation of 38%. Stock Bhas an expected return of 14% and a standard deviation of 21%. The correlation coefficient between two stocks is negative 0.4. The risk-free rate is 8% (Round your final answers to 2 decimal places 10.9.0.963 would be entered as 0.961) a) Calculate the Sharpe ratio for the two stocks. Stock A Stock 8 b) Assume that you can invest in both of these assets in portfolio C. How much should you invest in stock A and stock 8 to obtain an expected return of 17%? (Enter as decimals) Weight A Weight B c) Calculate the Sharpe ratio of portfolio C. d.) Based on all the statistics you calculated so far, would you rather invest in portfolio C, or in the individual stocks A and B? (Enter A, B, or C)
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Ans- D) As per Sharpe ratio theory, the greater a portfolio's/security's Sharpe ratio, the better its risk-adjusted-performance. As calculated above security B and portfolio C has a better sharpe ratio i.e. 0.29 but the return on portfolio C is higher than security B i.e 17% is higher than 14% so according to my findings I will invest in portfolio C.
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