Suppose the supper fund has an expected return of 13 and sd, Ask an Expert

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Suppose the SUPPER fund has an expected return of 13% and SD of 20%; BEAST fund has an expected

return of 5% and SD of 8%. The SUPPER and BEASST funds have a correlation coefficient of 0.35. Risk-free rate is 3%. Among all possible portfolios formed from the SUPPER and BEAST, what is the highest Sharpe ratio?

Solution: Diversification. Find the optimal portfolio weight of B (BEAST) is 0.3125 and that of SUPPER is 0.6875. As such, Expected return = 10.50%, SD = 14.81% and Sharpe ratio is 0.51.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92319467

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