USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.

-Refer to Exhibit 18.5. Compute the Sharpe Measure for the XXX fund.
A) 6.98
B) 2.35
C) 2.53
D) 3.86
E) 1.72

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.
 
-Refer to Exhibit 18.5. Compute the Sharpe Measure for the XXX fund.
A) 6.98 
B) 2.35 
C) 2.53 
D) 3.86 
E) 1.72

Quizplus · Accepted Answer

To calculate the Sharpe ratio, we need the excess return of the asset over the risk-free rate (Treasury bill rate), which is given by (14.39% - 1.54%) = 12.85%. We also need the standard deviation of the asset's returns, which is given by 8.39%. Therefore, the Sharpe ratio is (12.85% / 8.39%) = 1.53. This is the annual Sharpe ratio. To convert it to the Sharpe measure (monthly), we divide by the square root of 12, which gives us 1.53 / sqrt(12) = 0.44. The answer is then annualized by multiplying by the square root of 12, which gives us 0.44 * sqrt(12) = 2.53. Therefore, the best choice is C.