Explanation:
The correct answer is A.
The Sharpe Performance Index (SPI), also known as the Sharpe Ratio, measures the risk-adjusted return of a portfolio. To calculate the Sharpe Ratio, use the following formula:
where:
Expected return of the portfolio
Risk-free rate
Standard deviation (volatility) of the portfolio
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Q.5315 Tom Peters has been evaluating the performance of his company’s portfolio. He has the access to the below information.
| Portfolio’s expected return | 8.5% |
|---|---|
| Risk-free rate | 4% |
| Beta of the portfolio | 1.25 |
| Return on the benchmark portfolio | 7% |
| Standard deviation of returns of the portfolio | 6% |
From the above information, the Sharpe Performance Index (SPI) is closest to?
A
0.75
B
0.036
C
0.025
D
0.65
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