Congratulations! Your portfolio returned 17.5 % last year, 2.2 % better than the market return of 15.3 %. Your portfolio had a standard deviation of earnings equal to 21 %, and the risk-free rate is equal to 3.2 %. Calculate Sharpe's measure for your portfolio. If the market's Sharpe's measure is 0.31 , did you do better or worse than the market from a risk/return perspective?

Question

Timothy Fernandez

Business

10 February, 05:05

Congratulations! Your portfolio returned 17.5 % last year, 2.2 % better than the market return of 15.3 %. Your portfolio had a standard deviation of earnings equal to 21 %, and the risk-free rate is equal to 3.2 %. Calculate Sharpe's measure for your portfolio. If the market's Sharpe's measure is 0.31 , did you do better or worse than the market from a risk/return perspective?

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Answers (1)

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Nola Freeman · Answer 1

0.681 and better

Explanation:

The formula to compute the Sharpe measure is shown below:

Sharpe ratio = (Portfolio return - Risk-free rate) : (Standard deviation of portfolio return)

= (17.5% - 3.2%) : (21%)

= 0.681

Simply we deduct the risk free return from the portfolio return and divide it by the standard deviation of portfolio return

And the market Sharpe measure would be 0.31 and ours Sharpe measure would be 0.681 which reflect the better