return and standard deviation of Netflix (NFLX) stock were 3.5% and 10%, respectively. For the same period, the monthly average return and standard deviation of Verizon (VZ) were 0.6% and 4.6%, respectively. The correlation between NFLX and VZ was -0.1. Assume that the monthly risk-free rate is 0.1%. ) What is the Sharpe ratio for NFLX? What is the Sharpe ratio for VZ? Show your calculation steps briefly and clearly.  Find the minimum-variance portfolio (MVP), i.e., the weight of NFLX and VZ in the MVP. You do not need to show your calculation steps for this subquestion.  Find the optimal risky portfolio P*, i.e., the weight of NFLX and VZ in P*. You do not need to show your calculation steps for this subquestion.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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During the past 5-year, the monthly average return and standard deviation of Netflix (NFLX) stock were 3.5% and 10%, respectively. For the same period, the monthly average return and standard deviation of Verizon (VZ) were 0.6% and 4.6%, respectively. The correlation between NFLX and VZ was -0.1. Assume that the monthly risk-free rate is 0.1%.

  1. ) What is the Sharpe ratio for NFLX? What is the Sharpe ratio for VZ?
    • Show your calculation steps briefly and clearly.
  2.  Find the minimum-variance portfolio (MVP), i.e., the weight of NFLX and VZ in the MVP.
    • You do not need to show your calculation steps for this subquestion.
  3.  Find the optimal risky portfolio P*, i.e., the weight of NFLX and VZ in P*.
    • You do not need to show your calculation steps for this subquestion.
  4.  Calculate the Sharpe ratio for the optimal risky portfolio P*. Verify that P* offers a higher Sharpe ratio than NFLX and VZ.
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