Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Modern Portfolio Theory

A portfolio has a return of 14%, a standard deviation of 10% and a beta of 1.2. The risk-free rate is 6%. What is its Sharpe ratio?

The Sharpe ratio is 0.80. It is the excess return over the risk-free rate, 14% minus 6% equals 8%, divided by the portfolio's total risk measured by standard deviation of 10%, giving 0.80.

  1. A0.80Correct
  2. B1.40
  3. C0.67
  4. D1.20

Explanation

Sharpe ratio = (Rp - Rf) / standard deviation = (14 - 6) / 10 = 0.80. Using 14/10 gives 1.40 (excess return not taken), and 8/1.2 = 6.67 would be the Treynor measure in percent, not Sharpe.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Modern Portfolio Theory shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Modern Portfolio TheoryFree diagnostic mock

More Introduction to Modern Portfolio Theory questions