Does anyone know how to do this? ect mheducation.com/flow/connect.html Chapter 7

Question

Does anyone know how to do this?

ect mheducation.com/flow/connect.html Chapter 7 6 Greta, an elderly investor, has a degree of risk aversion of A 3 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 3-year strategies. (All rates are annual, continuousty d)The S&P 500 risk premium is estimated at 6% per year, with a SD of 18%. The hedge fund risk premium is estimated at 10% with a SD of 36% The return on each of these po olios in any year is uncorrelated with its return or the return of any other portfolio in any other year. The hedge fund management claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta believes this is far from certain. 10 points Compute the estimated 1-year risk premiums, SDs, and Sharpe ratios for the two portfolios. (Do not round your Round "Sharpe ratios" to 4 decimal places and other answers to 2 decimal places.) SDs

Explanation / Answer

Sharpe ratio = Risk Premium / Standard deviation of portfolio

S&P Portfolio

Hedge fund Portfolio

Risk Premiums

6%

10%

SDs

18%

36%

Sharpe ratios

0.33

0.28

S&P Portfolio

Hedge fund Portfolio

Risk Premiums

6%

10%

SDs

18%

36%

Sharpe ratios

0.33

0.28

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