Use the below payoff table with four mortgage options to answer the following question(s).
-Which of the following best defines Sharpe ratio?
A)It is a ratio of a fund's excess returns to its coefficient of variation.
B)It is a ratio of a fund's excess returns to its standard deviation.
C)It is a ratio of a fund's excess returns to its variance.
D)It is a ratio of a fund's excess returns to its mean.

Question

Use the below payoff table with four mortgage options to answer the following question(s). 
-Which of the following best defines Sharpe ratio?
A)It is a ratio of a fund's excess returns to its coefficient of variation. 
B)It is a ratio of a fund's excess returns to its standard deviation. 
C)It is a ratio of a fund's excess returns to its variance. 
D)It is a ratio of a fund's excess returns to its mean.

Quizplus · Accepted Answer

Sharpe ratio is a measure of risk-adjusted return. It calculates the excess return (return above the risk-free rate) per unit of risk (standard deviation of returns). Therefore, the correct definition of Sharpe ratio is that it is a ratio of a fund's excess returns to its standard deviation.

Use the Below Payoff Table with Four Mortgage Options to Answer