What is the Sharpe ratio

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Reference no: EM132868727

Question - You have been given this probability distribution for the holding-period return for ABC stock:

State of Economy Probability HPR

Boom 0.25 25%

Average 0.50 10%

Recession 0.25 -10%

Required -

(a) What is the expected holding-period return for ABC stock?

(b) What is the expected standard deviation for ABC stock?

(c) What is the expected variance for ABC stock?

(d) If the risk free asset return was 3%, and the actual standard deviation of the portfolio's excess returns was 25%, what's the Sharpe ratio?

(e) If the actual return of ABC stock is 10%, what's the alpha? Should you buy or sell? Please explain.

Reference no: EM132868727

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