Problem 3: Evaluating portfolio performance Assume you have two investment opportunities. 1. Corporate Disasters (CD) has expected returns E(RcD) = 4% and standard deviation of returns 9%. 2. Nevada...

Extracted text: Problem 3: Evaluating portfolio performance Assume you have two investment opportunities. 1. Corporate Disasters (CD) has expected returns E(RcD) = 4% and standard deviation of returns 9%. 2. Nevada beach front properties (NBF) has expected returns E(RygF) = 10% and standard deviation of returns 18% Risk free rate is R; = 1%. a) Calculate Sharpe ratios of these two portfolios. b) Assume you can invest only in one of those companies (and a risk free rate). Assume your target rate of return is 6%. Calculate portfolios with CD&RF and NBF&RF which would deliver this return. Which portfolio has smaller standard deviation and why? c) Assume you have a portfolio which is not efficient. Assume Corporate Disasters have market beta of ßep = 0.5 and Nevada beach front properties have market beta BNef = 4. Calculate Treynor measures for those securities. Which one should you add to your portfolio to increase the Sharpe ratio.