They mention in the solution to this question that Portfolio A is the appopriate solution for Robert Taylor and one of the reasons they cite is that it has a better Sharpe Ratio. My question is, how did they calculate the Sharpe Ratio without the Risk Free Rate? It’s not given anywhere in the question or the data and the Sharpe Ratios are not provided. Did they simply just use a dummy plug number for Risk Free Rate and apply it to each of the portfolios at arriving to a Sharpe Ratio? Thanks… PJStyles
I don’t remember this question, but they may have used either cash return rate or treasury reurn rates from somewhere in the question to derive the Sharpe Ratio.
you can solve for Rf and the shape by usuing a system of equations (i.e. two equations, two unknowns)…unlikely we would have to do that on the exam…