The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $$\begin{array} { l c c }
&& { \text { Market } } \
& \text { Monarch } & \text { Portfolio } \
\text { Average return } & 16 \% & 12 \% \
\text { Standard deviations of returns } &26 \% & 22 \% \
\text { Beta } & 1.15 & 1.00 \
\text { Residual standard deviation } &1\%&0\%\

\end{array}$$ The risk-free return during the sample period was 4%. Calculate Sharpe's measure of performance for Monarch Stock Fund.
A) 1%
B) 46%
C) 44%
D) 50%
E) None of the options are correct.

Question

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $$\begin{array} { l c c } 
&& { \text { Market } } \
& \text { Monarch } & \text { Portfolio } \
\text { Average return } & 16 \% & 12 \% \
\text { Standard deviations of returns } &26 \% & 22 \% \
\text { Beta } &  1.15 & 1.00 \
\text { Residual standard deviation } &1\%&0\%\

\end{array}$$ The risk-free return during the sample period was 4%. Calculate Sharpe's measure of performance for Monarch Stock Fund.
A) 1%
B) 46%
C) 44%
D) 50%
E) None of the options are correct.

Quizplus · Accepted Answer

Sharpe's measure of performance is calculated as (Rp - Rf) / σp, where Rp is the portfolio return, Rf is the risk-free rate, and σp is the portfolio standard deviation. In this case, Rp = 16%, Rf = 4%, and σp = 26%. Therefore, Sharpe's measure of performance for Monarch Stock Fund is (16% - 4%) / 26% = 46%.

The Following Data Are Available Relating to the Performance of Monarch