# Question

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?

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