Sharpe's measure of portfolio performance compares the risk premium on a portfolio to
A) a broad-based market index such as the S&P 500 index.
B) the portfolio's standard deviation of return.
C) the portfolio's beta.
D) the prevailing risk-free rate of return.

Question

Quizplus · Accepted Answer

Sharpe's measure of portfolio performance compares the risk premium on a portfolio (the return of the portfolio minus the risk-free rate) to the portfolio's standard deviation of return. This ratio helps to understand how much excess return is being received for the extra volatility that an investor takes on by holding a risky asset.

Sharpe's Measure of Portfolio Performance Compares the Risk Premium on a Portfolio