Explanation:
The Sharpe ratio is calculated as the excess return of the portfolio/market over the risk-free rate, divided by the standard deviation of the portfolio/market's return: Sharpe Ratio =
For the Portfolio: Sharpe Ratio =
For the Market: Sharpe Ratio =
Thus, the Sharpe ratios are 0.65 and 0.63 respectively.
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Q.51 Consider the following data for a particular fund for the year 2017:
| Portfolio | Market | |
|---|---|---|
| Average return | 32% | 25% |
| Beta | 1.15 | 1 |
| Standard deviation | 40% | 30% |
| Tracking error σ(e) | 16% | 0% |
| T-Bill rate | 6% |
Determine the Sharpe ratio of the portfolio and the market, respectively.
A
0.65 and 0.63
B
0.60 and 0.65
C
0.68 and 0.66
D
0.72 and 0.69
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