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Calculate the maximum sharpe ratio portfolio

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Reference no: EM133061420

Suppose you are a US investor looking for international diversification opportunities. Your investment advisor offers you an international equity index that expects annual returns of 18%, but the volatility of these returns is 48%. This international index comprises other developed countries as well as some emerging economies. The expected returns, volatility, and correlations are provided below:

 

Risk-Free Rate

US Equity Index Returns (annual)

International Equity Index Returns (annual)

Expected Returns

3%

8%

18%

Std. Deviation (Volatility)

0%

18%

48%

Correlation US Equity Index

0

1

0.4

Correlation International Equity Index

0

0.4

1

c. Calculate the maximum Sharpe ratio portfolio (only consider the option of investing in equity: international and equity index).

Reference no: EM133061420

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