Question

___________ is the ratio of the risk premium to the variability of returns (standard deviation of returns).

a.

Jensen's Alpha Ratio

b.

Treynor Ratio

c.

Sharpe's Ratio

d.

Fama's Net Selectivity Ratio

Posted under IC 89 Management Accounting

Answer: (c).Sharpe's Ratio Explanation:Sharpe's Ratio is a measure developed by William F. Sharpe to evaluate the performance of an investment by adjusting for its risk. It is calculated as the ratio of the excess return (the return over the risk-free rate) to the standard deviation of the investment's returns. The formula is: Sharpe′sRatio=(Rp−Rf) / σp, Where: Rp​ is the return of the portfolio or investment, Rf is the risk-free rate, σp​ is the standard deviation of the portfolio or investment's returns. The ratio provides a way to assess whether the return of an investment is sufficient for the level of risk taken. A higher Sharpe's Ratio indicates better risk-adjusted performance.

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Q. ___________ is the ratio of the risk premium to the variability of returns (standard deviation of returns).
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