A stock's average return is 11 percent. The average risk-free rate is 9 percent. The stock's beta is 1 and its standard deviation of returns is 10 percent. What is the Sharpe Index?

Question

Quizplus · Accepted Answer

The Sharpe Index is calculated as (portfolio return - risk-free rate) / standard deviation of returns.

In this case, the portfolio return is the average return of the stock, which is 11%.

Therefore, Sharpe Index = (11% - 9%) / 10% = 0.2

The best choice is E, which is 0.2.

A Stock's Average Return Is 11 Percent