When the sharpe ratio for the market portfolio is 0.5 what, Ask an Expert

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Suppose the expected return and the standard deviation on the Market Portfolio M are E (RM) = 12% and σM = 20%, respectively.

(a) When the Sharpe Ratio for the market portfolio is 0.5, what risk-free rate Rf is the market anticipate? Draw on a diagram for the Capital Market Line derived from the above data. Make sure to clarify the intercept and the slope.

(b) What should be an expected return of a well-diversified portfolio P (i.e. portfolios on the ML) with a volatility of 15%?

(d) What should be the standard deviation of an efficient portfolio with a beta of 0.4? Describe.

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