What of the following does not describe the Sharpe ratio? A) (r_p - r_f) / ?_P B) Reward -to-risk ratio C) Reward-to-variability ratio D) Expected returns are the sum of the risk free rate, plus the premium for bearing market risk.

Question

Quizplus · Accepted Answer

The Sharpe ratio is a measure used to evaluate the performance of an investment by adjusting for its risk. It is calculated as the difference between the returns of the investment and the risk-free rate, divided by the standard deviation of the investment's returns, which represents its risk. Therefore, it is known as a reward-to-variability ratio, accurately described by options A, B, and C. Option D incorrectly describes the Capital Asset Pricing Model (CAPM) formula, not the Sharpe ratio.

What of the Following Does Not Describe the Sharpe Ratio