Which of the following statements are true? Explain.a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio.b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios.c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio.d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments with a positive allocation to the risky asset.
Which of the following statements are true? Explain.a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio.b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios.c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio.d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments with a positive allocation to the risky asset.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 1QTD
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Which of the following statements are true? Explain.
a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio.
b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios.
c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio.
d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments with a positive allocation to the risky asset.
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