Consider the data presented below on three mutual funds and the market. Compute the Sharpe Measure for the AAA fund.
A) 4.49
B) 2.74
C) 1.57
D) 1.70
E) 1.27

Question

Consider the data presented below on three mutual funds and the market.  Compute the Sharpe Measure for the AAA fund.
A) 4.49 
B) 2.74 
C) 1.57 
D) 1.70 
E) 1.27

Quizplus · Accepted Answer

The Sharpe Measure is computed as (average return of the fund - risk-free rate) / standard deviation of the fund.

For the AAA fund: 
- Average return = 16.5% 
- Standard deviation = 10.5% 
- Risk-free rate = 2.1%

So the Sharpe Measure = (16.5% - 2.1%) / 10.5% = 1.57

Therefore, the best choice is C.

Consider the Data Presented Below on Three Mutual Funds and the Market