Sharpe ratio of fixed income portfolio or stock portfolio

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Suppose that you can invest in three assets: 1) risk-free Treasury bill with return of 5%; 2) A stock portfolio with expected return of 15% and standard deviation of 50%; 3) A fixed income portfolio with expected return of 10% and standard deviation of 20%. Assume that historically the correlation of the stock portfolio and fixed income portfolio is -0.2.

Suppose that you have $9,000 to invest and you want to invest 2/9 (22.22%) of your money in the risky portfolio o, how would you allocate your $9,000 among the three assets?

What’s the Sharpe ratio of your risky portfolio o? Is it higher than the Sharpe ratio of the fixed income portfolio or the stock portfolio?

Reference no: EM131886454

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