Question

A portfolio with a 25% standard deviation generated a return of 19% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio of ____.

Answer 1

Answer:

0.58

Explanation:

The sharpe ratio for any portfolio shall be determined through the following mentioned formula:

Sharpe ratio=(Rp-Rrf)/σp

Where

Rp = Return on the portfolio=

Rrf=the risk free rate of return=4.5%

σp= the standard deviation of the portfolio=25%

Applying the data in the given question to the above mentioned formula as follows:

Sharpe ratio=(19%-4.5%)/25%=0.58