The following table summarizes selected statistics for two portfolios for a 10-year period ending in 2006.Assume that the risk-free rate is 4% over this period. As measured by the Sharpe ratio,the fund with the superior risk-adjusted performance during this period is _________________________________________________________.
A) Fund A because it has a lower positive Sharpe ratio than Fund B
B) Fund B because it has a lower positive Sharpe ratio than Fund A
C) Fund A because it has a higher positive Sharpe ratio than Fund B
D) Fund B because it has a higher positive Sharpe ratio than Fund A

Question

The following table summarizes selected statistics for two portfolios for a 10-year period ending in 2006.Assume that the risk-free rate is 4% over this period.  As measured by the Sharpe ratio,the fund with the superior risk-adjusted performance during this period is _________________________________________________________.
A) Fund A because it has a lower positive Sharpe ratio than Fund B 
B) Fund B because it has a lower positive Sharpe ratio than Fund A 
C) Fund A because it has a higher positive Sharpe ratio than Fund B 
D) Fund B because it has a higher positive Sharpe ratio than Fund A

Quizplus · Accepted Answer

The Sharpe ratio measures risk-adjusted performance by comparing the excess return of an investment over the risk-free rate to its standard deviation (which measures the volatility of returns). A higher Sharpe ratio indicates better risk-adjusted performance. In this case, Fund A has a higher Sharpe ratio than Fund B (0.61 compared to 0.54), indicating that Fund A had better risk-adjusted performance over the 10-year period.

The Following Table Summarizes Selected Statistics for Two Portfolios for a 10-Year