In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broad-based fund of stocks and other securities with an expected return of 11% and a volatility of 25%. Currently, the risk-free rate of interest is 5%. Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 21%, a volatility of 78%, and a correlation of 0.2 with the Tanglewood Fund. Assume you follow your broker's advice and put 50% of your money in the venture fund: a. What is the Sharpe ratio of the Tanglewood Fund? b. What is the Sharpe ratio of your new portfolio? c. What is the optimal Sharpe ratio you can obtain by investing in the venture fund? (Hint: Use Excel and round your answer to two decimal places.)
In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broad-based fund of stocks and other securities with an expected return of 11% and a volatility of 25%. Currently, the risk-free rate of interest is 5%. Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 21%, a volatility of 78%, and a correlation of 0.2 with the Tanglewood Fund. Assume you follow your broker's advice and put 50% of your money in the venture fund: a. What is the Sharpe ratio of the Tanglewood Fund? b. What is the Sharpe ratio of your new portfolio? c. What is the optimal Sharpe ratio you can obtain by investing in the venture fund? (Hint: Use Excel and round your answer to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broad-based fund of stocks and
other securities with an expected return of 11% and a volatility of 25%. Currently, the risk-free rate of interest is 5%.
Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an
expected return of 21%, a volatility of 78%, and a correlation of 0.2 with the Tanglewood Fund. Assume you follow your
broker's advice and put 50% of your money in the venture fund:
a. What is the Sharpe ratio of the Tanglewood Fund?
b. What is the Sharpe ratio of your new portfolio?
c. What is the optimal Sharpe ratio you can obtain by investing in the venture fund? (Hint: Use Excel and round your
answer to two decimal places.)
a. What is the Sharpe ratio of the Tanglewood Fund? (Round all intermediate values to five decimal places as
needed.)
The Sharpe ratio of the Tanglewood Fund is 0.24 (Round to two decimal places)
b. What is the Sharpe ratio of your new portfolio? (Round all intermediate values to five decimal places as needed.)
The Sharpe ratio of your new portfolio is (Round to two decimal places.)
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