Example: Suppose you want to invest in one stock and one bond. The expected return and standard deviation of returns are presented in the table below. Suppose you want to invest 30 percent in the bond and 70 percent in the stock. Assume the risk-free rate is 1 percent and the correlation between the stock and bond is -0.5. What is the Sharpe ratio of the stock? What is the Sharpe ratio of the bond? What is the Sharpe ratio of the portfolio?
[Asset] Expected Return (%) Standard Deviation (%)
[Stock] - 9% 16%
[Bond] - 3% 12%