Which combination of returns and standard deviation provides the highest Sharpe ratio? Assume a 3% risk free rate.
A) return = 12%, standard deviation = 20%
B) return = 15%, standard deviation = 22%
C) return = 21%, standard deviation = 25%
D) return = 25%, standard deviation = 35%

Question

Quizplus · Accepted Answer

The Sharpe ratio is calculated as (Return - Risk-Free Rate) / Standard Deviation. For each option: A) (12%-3%)/20% = 0.45, B) (15%-3%)/22% = 0.545, C) (21%-3%)/25% = 0.72, D) (25%-3%)/35% = 0.629. Option C has the highest Sharpe ratio.

Which Combination of Returns and Standard Deviation Provides the Highest