A Portfolio Consists of the Following Two Funds What Is the Sharpe Ratio of the Portfolio?
A)

question 6

Multiple Choice

A portfolio consists of the following two funds:
$\begin{array}{lrr}&\text { Fund A }& \text { Fund B }\\\text { Expected Return } & 13 \% & 9\% \\\text { Standard deviation } & 16 \% & 10\% \\\text { Eortfolio market value } & \$ 6,000 & \$ 14,000\\\text {Correlation}{R}_A,{R}_B&0.54\\\text { Rigk-free rate }&4\%\end{array}$
What is the Sharpe ratio of the portfolio?

• A).391
• B).453
• C).529
• D).596
• E).640

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Definitions:

After-tax Operating Income

The profit a company generates from its core business operations after taxes have been subtracted, excluding non-operating income and expenses.

Equivalent Annual Cost

A financial analysis method used to compare the cost-effectiveness of different investments with unequal lifespans by converting their costs into an annualized format.

Required Return

The minimum annual percentage earned by an investment that will induce individuals or companies to commit money to the investment. It is also known as the cost of capital when applied to investment appraisal.

Ignore Taxes

A financial analysis assumption where tax implications are disregarded to simplify the calculation.