NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Modern Portfolio Theory
A portfolio has a return of 15%, standard deviation of 12% and the risk-free rate is 6%. What is its Sharpe ratio?
The Sharpe ratio is 0.75. It equals the excess return over the risk-free rate divided by the portfolio's standard deviation: 15% minus 6% gives 9%, divided by 12%. Ignoring the risk-free rate would wrongly give 1.25.
- A1.25
- B0.75Correct
- C0.50
- D1.00
Explanation
Sharpe ratio = (Rp - Rf) / standard deviation = (15 - 6) / 12 = 9 / 12 = 0.75. Using 15/12 gives 1.25 by ignoring the risk-free rate. Check: 0.75 x 12 = 9.
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.
More Introduction to Modern Portfolio Theory questions
- Two assets, A and B, each have a standard deviation of 10%. Which correlation coefficient between them gives the greatest reduction in risk …
- Using CAPM, a stock has beta 1.2, the risk-free rate is 7% and the expected market return is 12%. What is the required return on the stock?
- Rahul holds a stock with an expected return of 11% where CAPM gives a required return of 13%. Based on the Security Market Line, what does t…
- The risk-free rate is 7%, the expected market return is 13% and a stock has a beta of 1.5. According to CAPM, the required return on the sto…
- In the Capital Asset Pricing Model, the beta of a security measures which of the following?
- A portfolio earned 15% in a year when the risk-free rate was 6%. Its standard deviation was 18%. What is its Sharpe ratio?