bmaggie

Which of the following statements regarding the Sharpe ratio is most accurate? The Sharpe ratio measures:

A) excess return per unit of risk.

B) peakedness of a return distrubtion.

C) total return per unit of risk.

bmaggie

Which of the following statements regarding the Sharpe ratio is most accurate? The Sharpe ratio measures:

A) excess return per unit of risk.

B) peakedness of a return distrubtion.

C) total return per unit of risk.

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The Sharpe ratio measures excess return per unit of risk. Remember that the numerator of the Sharpe ratio is (portfolio return ? risk free rate), hence the importance of excess return. Note that peakedness of a return distribution is measured by kurtosis.

bmaggie

Portfolio A earned an annual return of 15% with a standard deviation of 28%. If the mean return on Treasury bills (T-bills) is 4%, the Sharpe ratio for the portfolio is:

A) 0.39.

B) 0.54.

C) 1.87.

bmaggie

Portfolio A earned an annual return of 15% with a standard deviation of 28%. If the mean return on Treasury bills (T-bills) is 4%, the Sharpe ratio for the portfolio is:

A) 0.39.

B) 0.54.

C) 1.87.

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(15 ? 4) / 28 = 0.39

bmaggie

Johnson Inc. manages a growth portfolio of equity securities that has had a mean monthly return of 1.4% and a standard deviation of returns of 10.8%. Smith Inc. manages a blended equity and fixed income portfolio that has had a mean monthly return of 1.2% and a standard deviation of returns of 6.8%. The mean monthly return on Treasury bills has been 0.3%. Based on the Sharpe ratio, the:

A) Johnson and Smith portfolios have exhibited the same risk-adjusted performance.

B) performance of the Smith portfolio is preferable to the performance of the Johnson portfolio.

C) performance of the Johnson portfolio is preferable to the performance of the Smith portfolio.

bmaggie

Johnson Inc. manages a growth portfolio of equity securities that has had a mean monthly return of 1.4% and a standard deviation of returns of 10.8%. Smith Inc. manages a blended equity and fixed income portfolio that has had a mean monthly return of 1.2% and a standard deviation of returns of 6.8%. The mean monthly return on Treasury bills has been 0.3%. Based on the Sharpe ratio, the:

A) Johnson and Smith portfolios have exhibited the same risk-adjusted performance.

B) performance of the Smith portfolio is preferable to the performance of the Johnson portfolio.

C) performance of the Johnson portfolio is preferable to the performance of the Smith portfolio.

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The Sharpe ratio for the Johnson portfolio is (1.4 - 0.3)/10.8 = 0.1019.

The Sharpe ratio for the Smith portfolio is (1.2 - 0.3)/6.8 = 0.1324.

The Smith portfolio has the higher Sharpe ratio, or greater excess return per unit of risk.

zaestau

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