Security A has an expected return of 12% per year and a standard deviation of 15%. Security B has an expected return of 12% per year and a standard deviation of 30%.

1. If the correlation coefficient between A and B is 0.2. Risk-free rate is 3% per year and an investor has put the same amount of money in A and B. What is the Sharpe ratio of this investment?
2. If the correlation coefficient between A and B is -0.3, which asset(s) should an investor hold to maximise the Sharpe ratio of his/her investment?

Answer rating: 100% (QA)

To solve this problem we need to calculate the Sharpe ratio of the investment portfolio Given inform... View the full answer