The expected return
You invest 50% of your assets in the Vanguard Total Stock Market ETF (VTI) and 50% in the Vanguard Total Bond Market ETF (BND). VTI has an expected return of 8% and a standard deviation of 16%. BND has an expected return of 5% and a standard deviation of 10%. The correlation between the returns of the investments is 0.2. The risk-free rate is 4%.
A) What is the expected return, the standard deviation, and the Sharpe ratio of your portfolio? Show the mathematical equations that you use to compute these measures.
B) Which portfolio of VTI and BND has the highest Sharpe ratio?