Answer:
(a) 0.75
(b) 0.2
(c) 0.6
Explanation:
(a)Calculating Sharpe ratio-
Given-
Expected return = 20%,
Risk free rate of return = 5%,
Volatility = 20%
Sharpe ratio = (Mean portfolio return - Risk free return) ÷ Standard deviation of portfolio
Sharpe Ratio = (20% - 5%) ÷ 20%
= 0.75
(b) Given-
Standard deviation = 40%,
Portfolio return= 11%,
Risk free return will remain same as 5%
Sharpe Ratio of Ebay = (11% - 5%) ÷ 40%
Sharpe Ratio of Ebay = 0.15
Correlation of Ebay with Optima fund:
= Sharpe ratio of Ebay ÷ Sharpe ratio of Optima fund
= 0.15 ÷ 0.75
= 0.2
(c) Correlation of Sub-Optima fund with Optima fund = 80%,
Sharpe ratio of Optima = 0.75
Correlation of Sub-Optima fund with Optima fund:
= Sharpe ratio of Sub-Optima fund ÷ Sharpe ratio of Optima fund
0.80 = Sharpe ratio of Sub-Optima fund ÷ 0.75
Sharpe ratio of Sub-Optima fund = 0.80 × 0.75
= 0.6
