FRM Part I · FRM Exam Part I · Fund Management
A hedge fund has a Sharpe ratio of 0.80, a return of 10%, and a risk-free rate of 2%. What is its standard deviation of returns?
Sharpe ratio equals excess return divided by standard deviation. Excess return is 10% minus 2%, or 8%. Dividing 8% by the Sharpe ratio of 0.80 gives a standard deviation of 10%.
- A10%Correct
- B8%
- C12.5%
- D6.4%
Explanation
Sharpe = (Rp - Rf)/sigma, so sigma = (10% - 2%)/0.80 = 10%. Dividing 10% by 0.8 gives 12.5%, which wrongly omits the risk-free rate.
Did you get it right without looking?
One question tells you little. A timed set on Fund Management shows your real accuracy, how long you take and where you lose marks.
More Fund Management questions
- An open-end mutual fund has total assets of $540 million, liabilities of $15 million, and 21 million shares outstanding at the close of trad…
- A hedge fund joins a database in January 2022 and immediately submits monthly returns going back to January 2019, when it started trading. T…
- A buyout fund has drawn down $80 million from its limited partners (LPs) and has distributed $120 million to them so far. The remaining inve…
- A researcher builds a hedge fund performance database from a commercial vendor in which funds report voluntarily. Funds that liquidate after…
- A closed-end fund has net assets of $180 million and 6 million shares. It trades at a 10% discount to NAV. An activist buys shares at market…
- Which of the following best describes a merger arbitrage strategy in which the acquirer offers its own shares to the target's shareholders?