Explanation:
The formula for calculating the Sharpe ratio for a portfolio:
Hence,
Therefore, the portfolios ranked from lowest to highest Sharpe ratio are 1, 2, 3.
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Q.4457 A 10-year research on 3 distinct portfolios and the market reveals the following information:
| Portfolio | Average annual return | Standard deviation | Beta |
|---|---|---|---|
| 1 | 14% | 21% | 1.15 |
| 2 | 16% | 24% | 1.00 |
| 3 | 20% | 28% | 1.25 |
| S&P 500 | 12% | 20% | — |
Given that the risk-free rate of return is 6%, use the Sharpe measure to rank the portfolios from the lowest to the highest.
A
1, 3, 2
B
2, 3, 1
C
2, 1, 3
D
1, 2, 3
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