CMA Final · Strategic Financial Management · Mutual Funds
A fund's portfolio yielded a return of 15% during the year with a standard deviation of 10% and a beta of 1.2. The risk-free rate is 6%. What is the Sharpe ratio of the fund?
The Sharpe ratio is 0.90. It equals the excess return over the risk-free rate, 15% minus 6% = 9%, divided by the fund's total risk measured by standard deviation of 10%. Beta is used for the Treynor ratio instead.
- A0.90Correct
- B0.75
- C1.50
- D0.09
Explanation
Sharpe ratio = (15 − 6)/10 = 0.90. Using beta in the denominator gives the Treynor measure (9/1.2 = 7.5), which is a different ratio, so it is wrong here.
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