You are provided below with annual return, standard deviation of returns, and tracking error to the relevant benchmark for three portfolios. Calculate the Sharpe ratio and information ratio for the three portfolios and rank them according to each measure.
$$\begin{array} { l c c c }
\text { Partfalia } & \text { Return } & \text { Standard Devintion } & \text { Trackine Errar } \
\hline 1 & 15.50 \% & 19.00 \% & 1.50 \% \
2 & 13.25 \% & 24.00 \% & 7.00 \% \
3 & 18.00 \% & 23.00 \% & 8.00 \% \
\text { Index } & 14.00 \% & 20.00 \% & \
\text { Risk-Free } & 5.00 \% & &
\end{array}$$

Question

You are provided below with annual return, standard deviation of returns, and tracking error to the relevant benchmark for three portfolios. Calculate the Sharpe ratio and information ratio for the three portfolios and rank them according to each measure.
 $$\begin{array} { l c c c } 
\text { Partfalia } & \text { Return } & \text { Standard Devintion } & \text { Trackine Errar } \
\hline 1 & 15.50 \% & 19.00 \% & 1.50 \% \
2 & 13.25 \% & 24.00 \% & 7.00 \% \
3 & 18.00 \% & 23.00 \% & 8.00 \% \
\text { Index } & 14.00 \% & 20.00 \% & \
\text { Risk-Free } & 5.00 \% & &
\end{array}$$

Quizplus · Accepted Answer

The Answer is

\bullet

Sharpe ratio calculations:
Portfolio

1 = \frac { 0.155 - 0.05 } { 0.19 } = 55.26 \% .

Rank 2
Portfolio

2 = \frac { 0.1325 - 0.05 } { 0.24 } = 34.38 \% .

Rank 3
Portfolio

3 = \frac { 0.18 - 0.05 } { 0.23 } = 56.52 \%

Rank 1

\bullet

Information ratio calculations:
Portfolio 1 = 100%. Rank 1
Portfolio

2 = \frac { 0.1325 - 0.14 } { 0.07 } = - 10.71 \%

Rank 3
Portfolio

3 = \frac { 0.18 - 0.14 } { 0.08 } = 50 \%

Rank 2
The next three problems deal with Value at Risk, which is not detailed in this textbook. A brief summary note on Value at Risk is given below.
$\bullet Sharpe ratio calculations: Portfolio 1 = \frac { 0.155 - 0.05 } { 0.19 } = 55.26 \% . Rank 2 Portfolio 2 = \frac { 0.1325 - 0.05 } { 0.24 } = 34.38 \% . Rank 3 Portfolio 3 = \frac { 0.18 - 0.05 } { 0.23 } = 56.52 \% Rank 1 \bullet Information ratio calculations: Portfolio 1 = 100%. Rank 1 Portfolio 2 = \frac { 0.1325 - 0.14 } { 0.07 } = - 10.71 \% Rank 3 Portfolio 3 = \frac { 0.18 - 0.14 } { 0.08 } = 50 \% Rank 2 The next three problems deal with Value at Risk, which is not detailed in this textbook. A brief summary note on Value at Risk is given below.$

You Are Provided Below with Annual Return, Standard Deviation of Returns