Over the next year, the stock market will either be a bull market or a bear market. The probability of a bull market is 25.00%, while the probability of a bear market is 84.00%. Shares in Meguire and Company will have a return of 16.80% in a bull market, and -8.30% in a bear market. The risk-free rate is 2.90%. What is the Sharpe Ratio of Meguire and Company shares?

Over the next year, the stock market will either be a bull market or a bear market. The probability of a bull market is 25.00%, while the probability of a bear market is 84.00%. Shares in Meguire and Company will have a return of 16.80% in a bull market, and -8.30% in a bear market. The risk-free rate is 2.90%. What is the Sharpe Ratio of Meguire and Company shares?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 3P

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Shares in SergeantPepper will earn a return of 5.80% during a bull market, and 2.40% during a bear market. Shares in AbbeyRoad will earn a return of 8.00% during a bull market, and 1.90% during a bear market. Over the next year, there is a 74% chance of a bull market, otherwise it will be a bear market. What is the covariance of the two security returns? 0.003552 0.000786 0.000399 0.000175
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