Question: Using Table 5.3 as your guide. (All returns in this problem are in annual term.) Estimate the Sharpe Ratio of the stock market portfolio and

Using Table 5.3 as your guide. (All returns in this problem are in annual term.) Estimate the Sharpe Ratio of the stock market portfolio and the Sharpe Ratio of the T-Bonds. Hints: Assume that market risk premium and market volatility are constant over time. The same for T-Bonds.

Market Sharpe Ratio =

T-Bond Sharpe Ratio =

Using Table 5.3 as your guide. (All returns in this problem are

TABLE 5.3 Risk and return of investments in major asset classes, 19272016 T-bills T-bonds Stocks Arithmetic average Risk premium Standard deviation max min 3.42 N/A 3.14 14.71 -0.02 5.51 2.08 8.14 38.07 -8.47 11.91 8.48 19.99 56.38 -43.73

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