Question

g The Sharpe Ratio measures: Select one: The risk of an investment The expected return of an investment The unexpected return; how much an investment over- or under-performed The extra return above the risk-free rate adjusted for systematic risk The extra return above the risk-free rate adjusted for total risk The extra return above the risk-free rate adjusted for unsystematic risk The raw return adjusted for the return on the market

Answer 1

The extra return above the risk-free rate adjusted for total risk

Step-by-step explanation:

The Sharpe Ratio was developed by William Sharpe, and it is used by investors to guage the return in an investment against risk.

To calculate it we find the excess return above risk free rate And divide it by the total risk.

This isolates the returns that are attributed to risk taking activity.

A risk free transaction for example is the yield on government treasury bills.

We use only returns associated with risk to get a better picture of risk adjusted return. The higher the ratio the better.