Investments Formula #5

Question 1

What is this formula?
Sp=rp-rf/σp

Answer 1

Sharpe ratio

Question 2

What does rp represent?

Answer 2

Return of the portfolio

Question 3

What does rf represent?

Answer 3

Risk free rate of return
t-bills

Question 4

What does σp represent?

Answer 4

Standard deviation

Question 5

What is the sharp ratio do for you?

Answer 5

It is the excess return of the portfolio to it standard deviation

Question 6

T or F
The number calculated is meaningless and less it is compared to the market or to other mutual funds

Answer 6

True

Question 7

Which is a better sharp ratio, a higher or lower number?

Answer 7

Higher because it means you were getting more return than it’s standard deviation

Question 8

To or F

The Sharpe ratio is a financial metric that helps you determine whether the risk you’ve taken on has generated high enough returns compared to the returns you might have seen without taking on risk.

Answer 8

True

Question 9

 Stephen’s portfolio has a mean return of 12%, a standard deviation of 6%, and a beta of 1.5. If the risk free rate of return is 3%, what is the portfolios sharp ratio?

Answer 9

1.5
rp-rf/σp
.12-.03/.06