NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers
A portfolio manager's portfolio earned 15% in a year, the risk-free rate was 6%, and the portfolio's standard deviation was 18%. What is its Sharpe ratio?
The Sharpe ratio is 0.50. Excess return over the risk-free rate is 9% (15% minus 6%), and dividing by the total risk of 18% standard deviation gives 0.50 of excess return per unit of total risk.
- A0.50Correct
- B0.83
- C0.33
- D1.50
Explanation
Sharpe ratio = (Rp − Rf) / standard deviation = (15 − 6) / 18 = 9/18 = 0.50. Using 15/18 ignores the risk-free rate and gives 0.83. The other values come from incorrect arithmetic.
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