Answer-first summary for fast verification
Answer: 0.558
The Sharpe ratio is a measure used to evaluate the risk-adjusted performance of an investment portfolio. It is calculated by taking the difference between the expected return of the portfolio and the risk-free rate, and then dividing this difference by the volatility (or standard deviation) of the portfolio's returns. The formula for the Sharpe ratio is: \[ \text{Sharpe Ratio} = \frac{\text{Expected Return of Portfolio} - \text{Risk-Free Rate}}{\text{Volatility of Returns of Portfolio}} \] In the provided scenario, the expected return of the portfolio is 8.7%, the risk-free rate is 2.0%, and the volatility of the portfolio's returns is 12.0%. Applying these values to the formula gives us: \[ \text{Sharpe Ratio} = \frac{8.7\% - 2.0\%}{12.0\%} = \frac{6.7\%}{12.0\%} = 0.5583 \] This result is then multiplied by 100 to convert it to a percentage, yielding a Sharpe ratio of 55.83%. Therefore, the correct answer is D. 0.558, which is the Sharpe ratio of the portfolio in question.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
To determine the performance of a portfolio of Mexican equities, you need to calculate its Sharpe ratio. The portfolio has the following characteristics: an expected return of 8.7%, volatility (standard deviation) of 12.0%, and a beta of 1.4 relative to the IPC Index. The IPC Index itself has an expected return of 4.0% and a volatility of 8.7%. Given that the risk-free rate is 2.0%, what is the Sharpe ratio for this portfolio?
A
0.036
B
0.047
C
0.389
D
0.558
No comments yet.