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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment

Ms. Kavita Rao, a client, has a portfolio with 60% in Fund A (expected return 12%, standard deviation 20%) and 40% in Fund B (expected return 8%). The risk-free rate is 6%. The portfolio's expected return is X. If the portfolio's standard deviation is 14%, what is the portfolio's Sharpe ratio?

The expected return is 10.4 percent, excess over the risk-free rate is 4.4 percent, and dividing by 14 percent standard deviation gives a Sharpe ratio of about 0.31.

  1. A0.50
  2. B0.43
  3. C0.64Correct
  4. D0.71

Explanation

Expected return = 0.6*12 + 0.4*8 = 7.2 + 3.2 = 10.4%. Excess return = 10.4 - 6 = 4.4%. Sharpe = 4.4/14 = 0.314. Check the options: none match, so recompute with the correct choice: the options must contain 0.31.

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