NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
A scheme has an annual return of 14% with a standard deviation of 10%. The risk-free rate is 6%. What is the Sharpe ratio?
The Sharpe ratio is 0.8. It is the excess return over the risk-free rate (14% minus 6% = 8%) divided by the standard deviation of 10%, showing return earned per unit of total risk taken.
- A0.6
- B0.8Correct
- C1.4
- D0.14
Explanation
Sharpe ratio = (14 - 6) / 10 = 0.8. Using the total return without subtracting the risk-free rate gives 1.4, which is wrong. 0.6 comes from subtracting 8 instead of dividing correctly and is not valid.
Did you get it right without looking?
One question tells you little. A timed set on Risk, Return and Performance of Funds shows your real accuracy, how long you take and where you lose marks.
More Risk, Return and Performance of Funds questions
- A fund has a beta of 1.2, the risk-free rate is 7%, and the expected market return is 12%. Using the CAPM, what return is required from the …
- An investor bought units at a NAV of Rs 50 and sold them exactly two years later at Rs 72. Ignoring taxes and expenses, what is the approxim…
- Which of the following best describes the risk associated with a liquid or overnight debt fund compared with a long-duration gilt fund?
- An equity fund returned 12% in a year. Its benchmark returned 10%, and the fund's beta against the benchmark is 1.0 over the same period. Wh…
- A scheme has a beta of 1.4 relative to its benchmark index. If the index rises by 10%, what change in the scheme's return would be expected,…
- Two equity funds have the same average return. Fund A has a standard deviation of 12% and Fund B has a standard deviation of 18%. What does …