Explanation:

Recall that the Sharpe ratio is given as:

\text{Sharpe Ratio} = \text{SR} = \frac{r_t - r_{f_t}}{\sigma}

$r_t = 0.212$ , $r_{f_t} = 0.116$ , $\sigma = 0.09$

Therefore:

\text{Sharpe Ratio} = \text{SR} = \frac{0.212 - 0.116}{0.09} = 1.0667

A ratio of 1.0667 implies that the investor earns approx. 1.07 per unit of risk.

Q.3021 James Dunn is a retail investor who expects his stock portfolio to return 21.2% in the following year. If the returns on risk-free Treasury notes are 11.6%, and the portfolio carries a standard deviation of 0.09, then which of the following is closest to the Sharpe ratio of Dunn’s portfolio?

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Last updated: July 5, 2026 at 07:07

1.5403

2.9873

1.0667

2.4543

Financial Risk Manager Part 2