3. A portfolio’s expected return is 12%, its standard deviation is 20%, and the risk-free rate is 4%. Which of
the following would make for the greatest increase in the portfolio’s Sharpe ratio? a. An increase of 1% in expected return. b. A decrease of 1% in the risk-free rate. c. A decrease of 1% in its standard deviation 4. An investor ponders various allocations to the optimal risky portfolio and risk-free T-bills to construct his complete portfolio. How would the Sharpe ratio of the complete portfolio be affected by this choice?
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