IndexAlpha Ratio 0.70 0.62 0.67 0.68 St. Dev. Beta Sharpe Treynor 0.3% 15% 17% 9

Question

IndexAlpha Ratio 0.70 0.62 0.67 0.68 St. Dev. Beta Sharpe Treynor 0.3% 15% 17% 9% 14% 1% 20% 26% 12% 19% 1.2 1.9 0.8 0.12-1.6% 0.08 0.10-24% 0.13 0.3% S&P; 500 13. Based on the table above, which investment would be the best choice if you were looking at the total risk of the investment (consider S&P; 500 as one of the investment options)y: A. A B. B C. C D. S&P; 500 14. Based on the table above, which investment would be the best choice if you were looking at the market driven risk of the investment (consider S&P; 500 as one of the investment options): A. A B. B C. C D. S&P; 500

Explanation / Answer

13. Sharpe ratio measures the return over the risk free risk adjusted for the total risk. In other words, Sharpe ratio is the average return earned in excess of risk free rate per unit of total risk.

Since for the question, we are looking at the total risk of investment, the higher Sharpe ratio, the better it is.

Investment A with a Sharpe ratio of 0.70 would be best choice considering total risk of the investment.

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