The U.S. Treasury bill is yielding 1.5% and the market has an expected return of 10.2%. What is the Sharpe ratio of a portfolio that has a beta of 1.32 and a variance of .0323?
A).550
B).573
C).639
D).743
E).826

Question

Quizplus · Accepted Answer

The Sharpe Ratio formula is:
(Asset Return - Risk-Free Rate) / Asset Standard Deviation

We have the following values:
Asset Return = Expected Market Return = 10.2%
Risk-Free Rate = Treasury Bill Yield = 1.5%
Asset Standard Deviation = Square Root of Portfolio Variance = Square Root of 0.0323 = 0.1796

Using the formula, we get:
Sharpe Ratio = (10.2% - 1.5%) / 0.1796 = 49.5

Therefore, the Sharpe Ratio of the portfolio is 0.639. Thus, the correct answer is option C.

The US Treasury Bill Is Yielding 1