Required:

1) The provided information to compute the Sharpe ratio before and after October, 1987 (assume the risk-free rate is 0.25%).  

2) Can we use central limit theory to approximate the sampling distributions of these Sharpe ratios?

Transcribed Image Text:

You are investigating whether the population variance of returns on the S&P 500/BARRA Growth Index changed subsequent to the October 1987 market crash. You gather the following data for 120 months of returns before October 1987 and for 120 months of returns after October 1987. You have specified a 0.05 level of significance. Time Period Before October 1987 After October 1987 120 120 Mean Monthly Return (%) 1.416 1.436 Variance of Returns 22.367 15.795 You are investigating whether the population variance of returns on the S&P 500/BARRA Growth Index changed subsequent to the October 1987 market crash. You gather the following data for 120 months of returns before October 1987 and for 120 months of returns after October 1987. You have specified a 0.05 level of significance. Time Period Before October 1987 After October 1987 120 120 Mean Monthly Return (%) 1.416 1.436 Variance of Returns 22.367 15.795

Answer rating: 100% (QA)

1To compute the Sharpe ratio we need to use the formula Sharpe ratio Mean return Riskfree rate Stand... View the full answer