Question

Asset A has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-volatility ratio?

Answer 1

0.4 or 40%

Step-by-step explanation:

The reward-to-volatility ratio, also known as the Sharpe ratio, is defined as the difference between the expected return rate and the risk-free rate divided by the standard deviation.

Expected return = 0.2

Risk-free rate = 0.10

Standard deviation = 0.25

`S=(0.2-0.1)/(0.25)\\S=0.4= 40\%`

The reward-to-volatility ratio is 0.4 or 40%