USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An analyst is considering investing in funds A, B, C, and D. The market portfolio, M, is expected to be 11 percent next period, and the risk-free rate of return is 3 percent. The market portfolio had a standard deviation over the past ten years of 0.20. The analyst gathered the following information on the four funds.

-Refer to Exhibit 18.8. Rank the four funds and market portfolio in order from highest to lowest based on their Sharpe measures.
A) A, B, C, D, M
B) B, C, M, D, A
C) C, A, M, D, B
D) D, A, B, M, C
E) D, B, A, C, M

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An analyst is considering investing in funds A, B, C, and D. The market portfolio, M, is expected to be 11 percent next period, and the risk-free rate of return is 3 percent. The market portfolio had a standard deviation over the past ten years of 0.20. The analyst gathered the following information on the four funds.
 
-Refer to Exhibit 18.8. Rank the four funds and market portfolio in order from highest to lowest based on their Sharpe measures.
A) A, B, C, D, M 
B) B, C, M, D, A 
C) C, A, M, D, B 
D) D, A, B, M, C 
E) D, B, A, C, M

Quizplus · Accepted Answer

The Sharpe ratio is calculated as (Return - Risk-Free Rate) / Standard Deviation. Without specific numbers, we can't calculate the exact Sharpe ratios, but the question seems to be theoretical. The correct order typically depends on the returns, risk-free rate, and standard deviations provided for each fund and the market portfolio. Since no data is provided, the correct answer cannot be determined based on calculations. However, assuming option E was chosen based on hypothetical data where Fund D has the highest Sharpe ratio followed by Fund B, A, C, and then the market portfolio (M), it suggests that Fund D has the best risk-adjusted return, followed by the others in the order listed. This is a theoretical explanation as actual calculations are required to accurately rank these options.