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A pension fund manager is considering three mutual funds. The first is a stock fund, the...

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.3%. The probability distributions of the risky funds are:

Expected Return Standard Deviation
Stock fund (S) 13% 34%
Bond fund (B) 6% 27%


The correlation between the fund returns is 0.0630.

What is the Sharpe ratio of the best feasible CAL

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Answer #1

Sharpe ratio = 0.2602

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