Assume that the domestic and foreign assets have standard deviations of s d = 16% and s
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Assume that the domestic and foreign assets have standard deviations of s d = 16% and s f = 19%, respectively (expressed in domestic currency), with a correlation of r d,f = 0.6. The risk-free rate is equal to 5% in both countries. Assume that the expected return on the foreign asset is higher than on the domestic asset, E( R d ) = 10% but E( R f ) =12% (expressed in domestic currency). Calculate the Sharpe ratio for an internationally-diversified portfolio equally invested in the domestic and foreign assets.
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