We expect to have our stock portfolio to return 12% next year. If returns on risk free T-bills are 3.5% and our portfolio has 6% standard deviation.
a) What is the Sharpe ratio?
b) If a stock portfolio A has a Sharpe ratio of 1.3 and alternative stock portfolio of B (has the same expected return as A) has a Sharpe ratio of 1.7, which one should you invest in?