Chapter 6, Problem 9CP

Summary Introduction

To calculate: The reward-to-volatility (Sharpe) ratio for the equity fund.

Introduction:

Reward-to-Volatility ratio is also called as Sharpe ratio. The ratio is useful when a risk premium on portfolio is to be compared with the total amount of the portfolio. The ratio can be calculated as follows:

  $\text{Sharpe ratio or Reward-to-Volatility ratio=}\frac{{\text{R}}_{\text{P}}{\text{-R}}_{\text{F}}}{{\text{σ}}_{\text{p}}}$