Investors' decisions to invest in a risky asset can be analyzed by using the Sharpe ratio, which measures the:

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The Sharpe ratio measures the excess return earned beyond the risk-free rate per unit of volatility or risk taken, which is calculated by dividing the mean of the difference in returns by the standard deviation of the differences. Option A is related to interest rates, inflation, and exchange rate, but it does not have any relevance to the Sharpe ratio. Option B is related to the interest rate differential, but it does not account for volatility or risk. Option D is only about exchange rate depreciation and does not involve any consideration of excess return.

Investors' Decisions to Invest in a Risky Asset Can Be