In addition to risk - free securities, you are currently invested in the Tanglewood Fund, a broad -based fund of stocks and other securities with an expected return of 14% and a volatility of 24 %. Currently, the risk - free rate of interest is 3% . Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 20 %, a volatility of 79 %, and a correlation of 0.2 with the Tanglewood Fund. Assume you follow your broker's advice and put 50% of your money in the venture fund: a. What is the Sharpe ratio of the Tanglewood Fund? b. What is the Sharpe ratio of your new portfolio? c. What is the optimal Sharpe ratio you can obtain by investing in the venture fund? (Hint: Use Excel and round your answer to three decimal places.)
In addition to risk - free securities, you are currently invested in the Tanglewood Fund, a broad -based fund of stocks and other securities with an expected return of 14% and a volatility of 24 %. Currently, the risk - free rate of interest is 3% . Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 20 %, a volatility of 79 %, and a correlation of 0.2 with the Tanglewood Fund. Assume you follow your broker's advice and put 50% of your money in the venture fund: a. What is the Sharpe ratio of the Tanglewood Fund? b. What is the Sharpe ratio of your new portfolio? c. What is the optimal Sharpe ratio you can obtain by investing in the venture fund? (Hint: Use Excel and round your answer to three decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:In addition to risk - free securities, you are currently invested in the Tanglewood
Fund, a broad -based fund of stocks and other securities with an expected return
of 14% and a volatility of 24 %. Currently, the risk - free rate of interest is 3% .
Your broker suggests that you add a venture capital fund to your current portfolio.
The venture capital fund has an expected return of 20 %, a volatility of 79 %, and
a correlation of 0.2 with the Tanglewood Fund. Assume you follow your broker's
advice and put 50% of your money in the venture fund: a. What is the Sharpe
ratio of the Tanglewood Fund? b. What is the Sharpe ratio of your new portfolio?
c. What is the optimal Sharpe ratio you can obtain by investing in the venture
fund? (Hint: Use Excel and round your answer to three decimal places.)
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