NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
A scheme earned 12% in a year. The risk-free rate was 6% and the scheme's standard deviation was 15%. Its beta was 0.8. Which statement about its Sharpe ratio and Treynor ratio is correct?
The Sharpe ratio is 0.40 and the Treynor ratio is 7.5%. The excess return over the risk-free rate is 6%. Sharpe divides it by standard deviation of 15%, while Treynor divides it by beta of 0.8.
- ASharpe ratio 0.40 and Treynor ratio 7.5%Correct
- BSharpe ratio 0.80 and Treynor ratio 7.5%
- CSharpe ratio 0.40 and Treynor ratio 4.8%
- DSharpe ratio 0.50 and Treynor ratio 6.0%
Explanation
Excess return = 12 - 6 = 6%. Sharpe = 6/15 = 0.40, using standard deviation. Treynor = 6/0.8 = 7.5%, using beta. Option 3 multiplies by beta instead of dividing. The 0.80 figure uses beta where standard deviation is needed.
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