Financial Risk Manager Part 2

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Explanation:

The formula for calculating the Sharpe ratio for a portfolio:

S_p = \frac{E(R_p) - R_f}{\sigma_p}

Hence,
$S_1 = (14\% - 6\%) / 21\% = 0.38$
$S_2 = (16\% - 6\%) / 24\% = 0.42$
$S_3 = (20\% - 6\%) / 28\% = 0.50$

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.

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%

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Last updated: July 5, 2026 at 07:23

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