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A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio (E(r_p) - r_L/sigma_P) of __

a. 0 65
b. 0.50
c. 0.42
d. 0.35

User Aeolus
by
8.4k points

1 Answer

4 votes

Answer:

c. 0.42

Step-by-step explanation:

The formula and the computation of the sharpe ratio is shown below:

= (Generated yearly return - T-bill) ÷ (standard deviation )

= (0.15 - 0.045) ÷ (0.25)

= (0.105) ÷ (0.25)

= 0.42

We simply deduct the T-bill from the yearly return generated and then divided it by the standard deviation so that the ratio can be achieved

User Andypandy
by
8.8k points
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