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 measure of ____.
A) 0.22
B) 0.60
C) 0.42
D) 0.25

Question

Quizplus · Accepted Answer

The Sharpe ratio is calculated as follows:
Sharpe ratio = (portfolio return - risk-free rate)/portfolio standard deviation

Here, portfolio return = 15%, T-bill rate = 4.5%, and portfolio standard deviation = 25%.

Thus, Sharpe ratio = (15% - 4.5%)/25% = 0.42.

Therefore, the best choice is C.

A Portfolio with a 25% Standard Deviation Generated a Return