A portfolio manager is concerned about her ranking relative to other portfolio man- agers. In practice, portfolio managers are often evaluated by the Sharpe Ratio of their portfolios. The risk free rate is 4% and the expected return on the market portfolio is 12%. The standard deviation of the expected return of the market is 12%. Suppose that the portfolio manager has no special information or ability, and her objective is to attain the highest possible Sharpe Ratio. If CAPM holds, what is the Sharpe Ratio she should obtain?

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The Sharpe Ratio measures the excess return of a portfolio per unit of risk where risk is measured b... View the full answer