A reward-to-volatility ratio is useful in:
A) measuring the standard deviation of returns.
B) understanding how returns increase relative to risk increases.
C) analyzing returns on variable rate bonds.
D) assessing the effects of inflation.
E) none of these.

Question

Quizplus · Accepted Answer

The reward-to-volatility ratio, also known as the Sharpe ratio, helps investors understand how much return they are receiving for each unit of risk they are taking. The ratio measures the excess return over a risk-free rate per unit of volatility. This makes it useful for understanding how returns increase relative to risk increases.

A Reward-To-Volatility Ratio Is Useful In