NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Risk and Return
A portfolio has an expected return of 15%, a standard deviation of 20% and the risk-free rate is 7%. What is its Sharpe ratio?
The Sharpe ratio is 0.40. It is the excess return over the risk-free rate, 15% minus 7% which is 8%, divided by the portfolio standard deviation of 20%, giving 0.40 of excess return per unit of total risk.
- A0.75
- B0.40Correct
- C0.35
- D0.55
Explanation
Sharpe ratio = (Rp - Rf)/standard deviation = (15 - 7)/20 = 0.40. Using 15/20 gives 0.75 by ignoring the risk-free rate. The other values do not follow from the data.
Did you get it right without looking?
One question tells you little. A timed set on Fundamentals of Risk and Return shows your real accuracy, how long you take and where you lose marks.
More Fundamentals of Risk and Return questions
- A research analyst computes the arithmetic mean of an equity's annual returns over several years and also its geometric mean return. When an…
- A stock's expected returns in three equally likely scenarios (boom, normal, slump) are 30%, 12% and -6%. What is its expected return?
- A stock has beta of 1.2. The risk-free rate is 7% and the expected market return is 12%. Using CAPM, the stock's required return is 13%. An …
- The risk-free rate is 7%, the expected market return is 12% and a stock has a beta of 1.4. Using CAPM, what is the required return on the st…
- Which statement about the coefficient of variation (standard deviation divided by mean return) is correct?
- The risk-free rate is 7%, the market return is 12% and a stock has beta 1.4. The stock is expected to return 13%. Using CAPM, what is its al…