The following table repeats the annual total returns on the MSCI Germany Index previously given and also gives the annual total returns on the JP Morgan Germany five- to seven-year government bond index (JPM 5-7 Year GBI, for short). During the period given in the table, the International Monetary Fund Germany Money Market Index (IMF Germany MMI, for short) had a mean annual total return of 4.33 percent.
A. Using the IMF Germany MMI as a proxy for the risk-free return, calculate the Sharpe ratio for:
I. The 60/40 equity/bond described in Problem 12.
II. The MSCI Germany Index.
III. The JPM Germany 5-7 year GBI.
B. Contrast the risk-adjusted performance of the 60/40 equity/bond the MSCI Germany Index, and the JPM Germany 5-7 Year GBI, as measured by the Sharpe ratio.
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