NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
The risk-free rate is 6%, a portfolio returns 14% and its standard deviation is 8%. What is its Sharpe ratio?
The Sharpe ratio is 1.00. The excess return over the risk-free rate is 14% minus 6%, which equals 8%. Dividing this by the portfolio standard deviation of 8% gives 1.00, meaning one unit of excess return per unit of total risk.
- A1.00Correct
- B1.75
- C0.75
- D0.57
Explanation
Sharpe ratio = (portfolio return − risk-free rate)/standard deviation = (14 − 6)/8 = 1.00. The 1.75 option divides the return alone by the standard deviation, and the 0.57 option divides the excess return by the 14% return.
Did you get it right without looking?
One question tells you little. A timed set on Investments shows your real accuracy, how long you take and where you lose marks.
More Investments questions
- Which of the following best describes inflation risk for an investor holding a fixed deposit?
- Asset X has expected return 14% with standard deviation 10%; the risk-free rate is 6%. Asset Y has expected return 12% with standard deviati…
- A portfolio has returns of +20% in year 1 and -20% in year 2. What is the approximate compound annual growth rate (CAGR) over the two years?
- Asset returns in four equally likely scenarios are 4%, 8%, 12% and 16%. What is the standard deviation, treating these four outcomes as the …
- Which of the following best describes systematic risk of an investment?
- An investor buys a share at Rs 200, receives a dividend of Rs 10 during the year and sells it at Rs 220 at the end of the year. What is the …