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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

The Sharpe ratio of a scheme is computed as:

Sharpe ratio is the scheme's return minus the risk-free return, divided by the scheme's standard deviation. It shows the excess return earned per unit of total risk. Dividing by beta instead gives the Treynor ratio, while dividing active return by tracking error gives the information ratio.

  1. A(Scheme return - Risk-free return) divided by the scheme's standard deviationCorrect
  2. B(Scheme return - Risk-free return) divided by the scheme's beta
  3. C(Scheme return - Benchmark return) divided by tracking error
  4. DScheme return divided by the benchmark return

Explanation

Sharpe ratio measures excess return over the risk-free rate per unit of total risk, which is standard deviation. Using beta gives the Treynor ratio. Dividing active return by tracking error gives the information ratio.

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