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
Sharpe ratio = 0.2602
Formula:
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