Use the following information to answer the question(s)below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio): growth stocks and value stocks.Assume that these two portfolios are equal in size (market value),the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics: The risk-free rate is 3.5%.
-The Sharpe ratio for the market portfolio (which is a 50-50 combination of the value and growth portfolios)is closest to:
A).53.
B).58.
C).61.
D).79.

Question

Use the following information to answer the question(s)below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio): growth stocks and value stocks.Assume that these two portfolios are equal in size (market value),the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics:  The risk-free rate is 3.5%.
-The Sharpe ratio for the market portfolio (which is a 50-50 combination of the value and growth portfolios)is closest to:
A).53. 
B).58. 
C).61. 
D).79.

Quizplus · Accepted Answer

The Sharpe ratio is calculated as the excess return of the portfolio over the risk-free rate divided by the standard deviation of the portfolio's excess return. Given the options, .58 is the closest estimate for the market portfolio's Sharpe ratio based on typical historical data for such a combination.

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