Quantitative Methods Q131

131A portfolio of large-cap companies’ stocks generated a mean portfolio return of 20% when the risk free rate was 6% in the economy. The variance of portfolio returns was found to be 0.025. The Sharpe ratio of the portfolio is closest to:

Option : B
Explanation : Sharpe Ratio = (Portfolio return − Risk free rate) ‚ standard deviation of returns = (0.2 - 0.06) ÷ sqrt(0.025) = 0.89

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