You are given a risk-free rate of 3% per year, a portfolio return of -11% per year, and a standard deviation of portfolio return is 20% 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 (-11% - 3%) / 20% = -14/20 = -0.7.