Answer: 0.558

The Sharpe ratio is a measure of risk-adjusted return, calculated as the difference between the expected return of the portfolio and the risk-free rate, divided by the volatility (standard deviation) of the portfolio's returns. In this case, the expected return of the portfolio is 8.7%, and the risk-free rate is 2.0%. The volatility of the portfolio's returns is 12.0%. Using the formula for the Sharpe ratio: \[ \text{Sharpe ratio} = \frac{\text{Expected return of portfolio} - \text{Risk-free rate}}{\text{Volatility of returns of portfolio}} \] \[ \text{Sharpe ratio} = \frac{8.7\% - 2.0\%}{12.0\%} \] \[ \text{Sharpe ratio} = \frac{6.7\%}{12.0\%} \] \[ \text{Sharpe ratio} = 0.5583 \] This calculation results in a Sharpe ratio of approximately 0.558, which corresponds to option D. The Sharpe ratio indicates that for each unit of risk taken (as measured by the volatility of the portfolio's returns), the portfolio is expected to provide a return of 0.558 units above the risk-free rate. This is a measure of the portfolio's performance relative to its risk, and a higher Sharpe ratio generally indicates a more favorable risk-adjusted return.

Author: LeetQuiz Editorial Team