You are given a risk-free rate of 5% per year, a portfolio return of 15% per year, and a standard deviation of portfolio return of 16% per year. What is the Sharpe measure of risk-adjusted performance?
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A. B. C. D.A
The Sharpe measure of risk-adjusted performance is equal to (rbar_p - rbar_f)/sigma_p, where rbar_p is the mean portfolio return, rbar_f is the mean risk-free return, and sigma_p is the standard deviation of portfolio return. In our case, we have (15% - 5%) / 16% = 10/16 = 5/8 = 0.625.