Part OneQuestion 6We determine the optimal portfolio that performs better by using the Sharpe Ratio, or Risk-to-Reward Ratio. This ratio measures the return in excess of the risk-free rate per unit of volatilityor total risk. This ratio is calculated by taking the difference between the expected return of theportfolio and the risk-free rate (in this case is the T-bill rate) divided by the standard deviation ofthe portfolio. We arrive at a Sharpe Ratio of 29.70% for John’s Portfolio, which consists of ^GSPC
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