You Are Provided Below with Annual Return, Standard Deviation of Returns

question 10

Essay

You are provided below with annual return, standard deviation of returns, and tracking error to the relevant benchmark for three portfolios. Calculate the Sharpe ratio and information ratio for the three portfolios and rank them according to each measure.
$$\begin{array} { l c c c } \text { Partfalia } & \text { Return } & \text { Standard Devintion } & \text { Trackine Errar } \\\hline 1 & 15.50 \% & 19.00 \% & 1.50 \% \\2 & 13.25 \% & 24.00 \% & 7.00 \% \\3 & 18.00 \% & 23.00 \% & 8.00 \% \\\text { Index } & 14.00 \% & 20.00 \% & \\\text { Risk-Free } & 5.00 \% & &\end{array}$$

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Definitions:

Allowance for Doubtful Accounts

A reserve for accounts receivable that may not be collectible and is considered a contra asset on the balance sheet.

Bad Debt Expense

Represents the cost associated with accounts receivable that a company deems uncollectible, affecting the net income on its income statement.

Aging of Accounts Receivable

A process of categorizing accounts receivable based on how long they have been outstanding to estimate potential uncollectible amounts.

Allowance for Doubtful Accounts

An accounting provision made by companies to account for anticipated losses due to customers' failure to pay owed amounts.