The Sharpe ratio. Introduction: The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio . Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

Question

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Answer 1

Question

Chapter 11, Problem 40P

a)

Summary Introduction

To determine: The Sharpe ratio.

Introduction:

The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

b)

Summary Introduction

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

c)

Summary Introduction

To determine: The Sharpe ratio of SOA Company’s fund.

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Students have asked these similar questions

Suppose you are given stocks A and B. Stock A has an expected return of 11% and a standard deviation of 4%. Stock B has an expected return of 21% and a standard deviation of 10%. The correlation between them is -1. Suppose it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Round answer to 3 decimal places.)

The Optima Mutual Fund has an expected return of 19.5% and a volatility of 20.4%. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 5.5%. What is Optima’s Sharpe Ratio? If eBay’s stock has a volatility of 37.8% and an expected return of 9.3%, what must be its correlation with the Optima Fund? If the SubOptima Fund has a correlation of 85% with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund?

If the risk-free rate of return is 2.1%, the beta of the mutual fund is 1.7, and the return of market is 5%, what is the required rate of return?

Answer 2

Question

Chapter 11, Problem 40P

a)

Summary Introduction

To determine: The Sharpe ratio.

Introduction:

The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

b)

Summary Introduction

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

c)

Summary Introduction

To determine: The Sharpe ratio of SOA Company’s fund.

Expert Solution & Answer

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Answer 3

Question

Chapter 11, Problem 40P

a)

Summary Introduction

To determine: The Sharpe ratio.

Introduction:

The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

b)

Summary Introduction

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

c)

Summary Introduction

To determine: The Sharpe ratio of SOA Company’s fund.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 40P

a)

Summary Introduction

To determine: The Sharpe ratio.

Introduction:

The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

b)

Summary Introduction

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

c)

Summary Introduction

To determine: The Sharpe ratio of SOA Company’s fund.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 40P

a)

Summary Introduction

To determine: The Sharpe ratio.

Introduction:

The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

b)

Summary Introduction

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

c)

Summary Introduction

To determine: The Sharpe ratio of SOA Company’s fund.

Answer 6

Chapter 11, Problem 40P

a)

Summary Introduction

To determine: The Sharpe ratio.

Introduction:

The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

Answer 7

Chapter 11, Problem 40P

a)

Summary Introduction

To determine: The Sharpe ratio.

Introduction:

The average return incurred in excess of the risk-free rate per unit of the volatility is termed as Sharpe ratio. Its measure indicates the amount of excess return an investor incur for an additional volatility, which the investor endure for holding a risky asset. The efficient portfolio is a particular portfolio with the maximum Sharpe ratio in the economy.

Answer 8

b)

Summary Introduction

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Answer 9

b)

Summary Introduction

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Answer 10

c)

Summary Introduction

To determine: The Sharpe ratio of SOA Company’s fund.

Answer 11

c)

Summary Introduction

To determine: The Sharpe ratio of SOA Company’s fund.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CC Ch. 11.3 - Prob. 2CC Ch. 11.4 - Prob. 1CC Ch. 11.4 - Prob. 2CC Ch. 11.4 - Prob. 3CC Ch. 11.5 - What do we know about the Sharpe ratio of the...

Solution Summary: The author explains the Sharpe ratio, which indicates the amount of excess return an investor incurs for holding a risky asset.

Videos

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

To determine: The Sharpe ratio of SOA Company’s fund.

Want to see the full answer?

Chapter 11 Solutions

Solution Summary: The author explains the Sharpe ratio, which indicates the amount of excess return an investor incurs for holding a risky asset.

Videos

To determine: The correlation between the EB Company’s stock with the OA Company’s stock. Introduction: Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

To determine: The Sharpe ratio of SOA Company’s fund.

Want to see the full answer?

Chapter 11 Solutions

To determine: The correlation between the EB Company’s stock with the OA Company’s stock.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.