Sharpe ratio of the investor's portfolio = (E(Rₚ) - R_f)/σₚ = (0.31 - 0.05)/0.19 = 1.37
Sharpe ratio of market portfolio = (E(Rₘ) - R_f)/σₘ = (0.22 - 0.05)/0.16 = 1.06

Difference = 1.37 - 1.06 = 0.31

Things to Remember

• The Sharpe ratio is a measure of risk-adjusted return, calculated by subtracting the risk-free rate from the expected portfolio return and dividing the result by the standard deviation of the portfolio's excess return.
• A higher Sharpe ratio indicates a better risk-adjusted return for the investor.
• The Sharpe ratio helps investors understand the return they are receiving for the amount of risk they are taking.
• Beta measures the sensitivity of a portfolio's returns to the market returns. A beta of less than 1 indicates lower volatility compared to the market.
• The risk-free rate is the return on an investment with zero risk, typically represented by government bonds.