# Question: The Optima Mutual Fund has an expected return of 20

The Optima Mutual Fund has an expected return of 20%, and a volatility of 20%. Optima claims that no other portfolio offers a higher Sharpe ratio. Suppose this claim is true, and the risk-free interest rate is 5%.

a. What is Optima’s Sharpe Ratio?

b. If eBay’s stock has a volatility of 40% and an expected return of 11%, what must be its correlation with the Optima Fund?

c. If the SubOptima Fund has a correlation of 80% with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund?

a. What is Optima’s Sharpe Ratio?

b. If eBay’s stock has a volatility of 40% and an expected return of 11%, what must be its correlation with the Optima Fund?

c. If the SubOptima Fund has a correlation of 80% with the Optima Fund, what is the Sharpe ratio of the SubOptima Fund?

**View Solution:**## Answer to relevant Questions

Returning to Problem 38, assume you follow your broker’s advice and put 50% of your money in the venture fund.a. What is the Sharpe ratio of the Tanglewood Fund?b. What is the Sharpe ratio of your new portfolio?c. What is ...You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns:a. What was XYZ’s average historical return?b. Compute the market’s and XYZ’s excess returns ...Consider the following airline industry data from mid-2009:a. Use the estimates in Table 12.3 to estimate the debt beta for each firm (use an average if multiple ratings are listed).b. Estimate the asset beta for each ...Your brother Joe is a surgeon who suffers badly from the overconfidence bias. He loves to trade stocks and believes his predictions with 100% confidence. In fact, he is uninformed like most investors. Rumors are that Vital ...Schwartz Industry is an industrial company with 100 million shares outstanding and a market capitalization (equity value) of $4 billion. It has $2 billion of debt outstanding. Management have decided to delever the firm by ...Post your question