The Sharpe ratio measures ________.
A) the extra reward per unit of risk
B) the extra risk per unit of reward
C) the increase in mean per unit of risk
D) the extra variance per unit of reward

Question

Quizplus · Accepted Answer

The Sharpe ratio measures the excess return per unit of risk. It is calculated by subtracting the risk-free rate from the expected portfolio return and then dividing by the portfolio's standard deviation of returns. This ratio indicates how much excess return is earned per unit of additional risk taken on by the investor. A higher Sharpe ratio indicates a better risk-adjusted performance.

The Sharpe Ratio Measures ________