Consider the following information: Portfolio Expected Return Standard Deviation Risk-free 7 % 0 % Market 12.2 31 A 11.0 20 a. Calculate the Sharpe ratios for the market portfolio and portfolio A

The Sharpe ratios for the market portfolio and portfolio A is 0.1677 and 0.2 respectively

Explanation:

The computation of the Sharpe ratio is shown below:

= (Expected Rate of Return - Risk-free rate of return) : (Standard Deviation)

For Market portfolio, it would be

= (12.2% - 7%) : (31%)

= 5.2% : 31%

= 0.1677

For portfolio A, it would be

= (11% - 7%) : (20%)

= 4% : 20%

= 0.20

Simply we apply the Sharpe ratio formula in which the risk-free rate of return is deducted from the expected return and the same is divided by the Standard Deviation