Why the correct answer is B? 2. Assume that investors can borrow and lend at ris

Question

Why the correct answer is B?

2. Assume that investors can borrow and lend at risk-free rate of 5%. The optimal tangent portfolio on the efficient frontier has an expected return of 15%, and STD of 20%. John would like to construct his complete investment portfolio by allocating funds between the risk-free asset and the optimal tangent portfolio. Which of the following complete portfolios can John NOT achieve? A. B. C. D. E. Portfolio A with E(R)-17.5% and STD=25% Portfolio B with E(R)-13% and STD-18% Portfolio C with E(R)-10% and STD-10% Portfolio D with E(R)-5.5% and STD-1% None of the above.

Explanation / Answer

tangency portfolio has the equal Sharpe ratio

sharpe ratio = (15 - 5)/20 = 0.5

sharpe of B = (13 - 5)/18 = 0.44

others have the Sharpe as 0.5

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.