5. A measure of risk-adjusted performance that is often used is the Sharpe ratio. The...
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5. A measure of risk-adjusted performance that is often used is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation. The standard deviation and return of the funds over the past 10 years are listed in the following table. Calculate the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of the company stock will be 17 percent and 70 percent, respectively. Calculate the Sharpe ratio for the company stock. How appropriate is the Sharpe ratio for these assets? When would you use the Sharpe ratio? 10-Year Standard Annual Return Deviation Bledsoe S&P 500 Index Fund 6.88% 10.75% 9.29 12.81 Bledsoe Small-Cap Fund Bledsoe Large-Company Stock Fund 3.56 10.99 5.27 7.12 Bledsoe Bond Fund 6. What portfolio allocation would you choose? Why? Explain your thinking carefully
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