Question

If the risk premium of stock JKL is 5% while the standard deviation is 10%, then the Sharpe ratio equals:

A) 0.5
B) 0.05
C) 0.15
D) 0.50

Answer 1

The Sharpe ratio for stock JKL, with a risk premium of 5% and a standard deviation of 10%, is 0.5. The Sharpe ratio is used to measure the risk-adjusted returns of an investment. It is calculated by taking the difference between the expected return of the investment and the risk-free rate, and dividing it by the standard deviation of the investment. In this case, the risk premium of stock JKL is 5%, and the standard deviation is 10%. So the Sharpe ratio would be 5%/10% = 0.5. Therefore, the correct answer is A) 0.5.

Step-by-step explanation:

If the risk premium of stock JKL is 5% and the standard deviation is 10%, then the Sharpe ratio is calculated by dividing the risk premium by the standard deviation. In this case, the Sharpe ratio equals 0.5 (5% / 10%). Therefore, the correct answer is A) 0.5.

The Sharpe ratio is used to measure the risk-adjusted returns of an investment. It is calculated by taking the difference between the expected return of the investment and the risk-free rate, and dividing it by the standard deviation of the investment. In this case, the risk premium of stock JKL is 5%, and the standard deviation is 10%. So the Sharpe ratio would be 5%/10% = 0.5. Therefore, the correct answer is A) 0.5.