A stock's average return is 11 percent. The average risk-free rate is 9 percent. The stock's beta is 1, and the standard deviation of its returns is 10 percent. What is the Sharpe index?
A) 0.05
B) 0.5
C) 0.1
D) 0.02
E) 0.2

Question

Quizplus · Accepted Answer

The Sharpe index is calculated as (Rp - Rf) / σp, where Rp is the expected return of the stock, Rf is the risk-free rate, and σp is the standard deviation of the stock's returns. In this case, Rp = 11%, Rf = 9%, and σp = 10%. Therefore, the Sharpe index is (11% - 9%) / 10% = 0.02, or 2%.

A Stock's Average Return Is 11 Percent