112k views
4 votes
Sharpe ratio is most helpful when

A. we measure the risk of a portfolio.
B. measuring standard deviation of inflation risk
C. measuring relation of real returns to risk
D. measuring how returns change when beta increases

User Kaza
by
8.7k points

1 Answer

6 votes

Answer: C. measuring relation of real returns to risk

Step-by-step explanation:

It is generally said that the riskier the asset, the higher the reward. This is why risk-free investments like US Treasury Notes and Bills have such low returns but risker investments like corporate bonds will give you a extra return for being riskier than the safe investments.

The Sharpe ratio is used to calculate that extra return you get over the risk-free asset when you hold a risky asset which means that in summary, it measures the relation of real returns to risk.

User Oklas
by
7.9k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.