A A 22 Calibri Merge & Center 00 $ % Paste EEEEE BIU Alignment Number Clipboard Font Enable Content SECURITY WARNING Macros have been disabled Question 05 A1 D E B 6 1 Question 05 2 3 Powerball costs $2 and has a one-to-300 million probability of a $500 million jackpot. 4 5 State Probability Result Return 6 Jackpot 0.00000000333333 $500,000,000 24999999900% 7 Nothing 0.99999999666667 $0 -100% 8 9 If the risk-free rate is zero, then what is Powerball's Sharpe ratio? 10 11 A 0 12 B -0.08 13 C -0.16 14 D -0.24 15 16 17 Hint: 18 19 hario Returns Example A 1 Fier Select Forang tatlow Styles Styles Ali Eating Clipboard al SECURITY WARNING Macron have been disabled Enable Co > f Questions H M N 13c -0.16 -0.24 14 D 15 16 17 Hint 18 19 20 21 22 23 24 23 20 27 28 Expected Return and Standard Deviation . Expected returns Scenario Returns Example Now suppose to you estimate the following scenarios for Par Fund. What is the run and Sharpe Ratio . In equilibrium, assets are priced based on risk -High risk assets offer higher returns than low risk - pro Excellent Prof State 25 45 > 05 03100 0 1400 -0.0673 0.5.200 Need to risk adjust returns to compare returns of assets with different levels of risk P(s) Probability of a state (6) Return toate cours E-(2531)+(45145-06751005-05) E-06 . Sharpe Ratio SR all 30 31 32 33 3.1 Expected Return and Standard Deviation Variance (var 35 36 22 38 39 40 Example Scenario var and std: Variance calculation: 07.,250.31 -0.0976. 454.14 - 0976 25 -0.0675-00976.05-52- 09761 038 **-0[0) - Elu23] - Standard Deviation (std): Standard deviation calculation -0.038 0.1949 41 44 40 47 midterm 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 24 25 Type here to search O