Question

Your portfolio has an expected return of 12.9%, a beta of 1.52, and a standard deviation of 19.4%. The U.S. Treasury bill rate is 1.35%. What is the Sharpe ratio of your portfolio?

a) 0.614
b) 0.827
c) 0.675
d) 0.925

Answer 1

The Sharpe ratio is calculated by subtracting the risk-free rate of return from the portfolio's expected return, and then dividing by the standard deviation of the portfolio's returns. In this case, the Sharpe ratio of the portfolio is approximately 0.614. The correct option is a.

Step-by-step explanation:

The Sharpe ratio is the value of risk-adjusted return in finance. It is calculated by subtracting the risk-free rate of return from the portfolio's expected return, and then dividing by the standard deviation of the portfolio's returns.

In this case, the Sharpe ratio will be calculated as:

Sharpe ratio = (Expected return - Risk-free rate) / Standard deviation

Using the given values:

Expected return = 12.9%, Risk-free rate = 1.35%, Standard deviation = 19.4%

Sharpe ratio = (0.129 - 0.0135) / 0.194 = 0.0614

Therefore, the Sharpe ratio of the portfolio is approximately 0.614.

Hence, Option a is correct.