Zilo stock has an average return minus the average risk-free rate of 5 percent, a beta of 1, and a standard deviation of returns of 20 percent. The Sharpe index of Zilo stock is
A) 0.05.
B) 0.35.
C) 0.25.
D) 0.45.
E) none of the above

Question

Quizplus · Accepted Answer

The Sharpe index is the excess return of an asset over the risk-free rate, divided by its standard deviation of returns. 
In this case, the excess return is 5% (average return of Zilo stock minus the risk-free rate of 0%), and the standard deviation is 20%. 
So, Sharpe index = (5% / 20%) = 0.25. 
Therefore, the correct answer is C.

Zilo Stock Has an Average Return Minus the Average Risk-Free