Assume you have two investment opportunities. 1. Corporate Disasters (CD) has expected returns E(Rep) = 4%...

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Assume you have two investment opportunities. 1. Corporate Disasters (CD) has expected returns E(Rep) = 4% and standard deviation of returns 9%. 2. Nevada beach front properties (NBF) has expected returns E(RNBF) = 10% and standard deviation of returns 18% Risk free rate is Ry = 1%. a) Calculate Sharpe ratios of these two portfolios. b) Assume you can invest only in one of those companies (and a risk free rate). Assume your target rate of return is 6%. Calculate portfolios with CD&RF and NBF&RF which would deliver this return. Which portfolio has smaller standard deviation and why? c) Assume you have a portfolio which is not efficient. Assume Corporate Disasters have market beta of BcD = 0.5 and Nevada beach front properties have market beta BNBF = 4. Calculate Treynor measures for those securities. Which one should you add to your portfolio to increase the Sharpe ratio. Assume you have two investment opportunities. 1. Corporate Disasters (CD) has expected returns E(Rep) = 4% and standard deviation of returns 9%. 2. Nevada beach front properties (NBF) has expected returns E(RNBF) = 10% and standard deviation of returns 18% Risk free rate is Ry = 1%. a) Calculate Sharpe ratios of these two portfolios. b) Assume you can invest only in one of those companies (and a risk free rate). Assume your target rate of return is 6%. Calculate portfolios with CD&RF and NBF&RF which would deliver this return. Which portfolio has smaller standard deviation and why? c) Assume you have a portfolio which is not efficient. Assume Corporate Disasters have market beta of BcD = 0.5 and Nevada beach front properties have market beta BNBF = 4. Calculate Treynor measures for those securities. Which one should you add to your portfolio to increase the Sharpe ratio.

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a Sharpe ratio measures the excess return earned over the riskfree rate per unit of volatility or ri... View the full answer