What portfolio allocation would you choose and why? My sharpe calculations: A...
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Accounting
What portfolio allocation would you choose and why?
My sharpe calculations:
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 deviations and returns of the funds over the past 10 years are listed here. Calculate the Sharpe ratio for each of these funds. Assume that the expected return and standard deviation of the company stock will be 16 percen and 58 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? Assume a 3.2 percent risk-free rate. 10-Year Annual Return Standard Deviation Bledsoe S&P 500 Index Fund 11.04% 18.45% Bledsoe Small-Cap Fund 16.14 29.18 Bledsoe Large Company Stock Fund 12.15 24.43 Bledsoe Bond Fund 6.93 9.96 What portfolio allocation would you choose? Why? Explain your thinking carefully. Sharpe Ratio Bledese S&P 500 Index Fund = (11.04 - 3.2) / 18.45 = .4249 Bledose Small Cap Fund = (16.14 - 3.2) / 29.18 = .4435 Bledese Large Company Stock Fund = (12.15 -3.2)/24.43 = -5297 Bledese Bond Fund = (6.93 -3.2) / 9.96 = .3745 Company Stock = (16-3.2) / 58 = 2207
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