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Robert Meznar is currently employed as a senior software architect in a large established software company. He is 38 years old, and his current salary is $80,000 after tax. Meznar recently sold his stock (acquired through stock options) in an Internet start up company. The entire proceeds of $2 million is held in treasury securities.
Meznar is currently married with 3 children. He is concerned with the potential educational expenses of his children and wants to set aside $500,000 for his favorite charitable organization. The family needs $150,000 to maintain its current lifestyle. The expected inflation rate is 6% and Meznar pays a 20% tax rate on his investment income. Meznar does some investment research on his own, is confident, careful and methodical, and tries to avoid extreme volatility. However, he has a strong preference for good, brand name companies.
John Snow, CFA, of Capital Associates has been forwarded the file of Meznar to suggest an appropriate portfolio. Snow relies heavily on the following forecasts, furnished by the firm, for long term returns for different asset classes. He has already developed three possible portfolios for Meznar.
Assume the expected standard deviation of X, Y, and Z are 10.74%, 19%, and 22% respectively. If the risk free rate is 5%, what are the Sharpe ratio measures of portfolio X, Y and Z?
A.
B.
C.
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