If a Portfolio Had a Return of 12%, the Risk-Free

question 58

Multiple Choice

If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard deviation of the portfolio's excess returns was 25%, the Sharpe measure would be

• A) 0.12.
• B) 0.04.
• C) 0.32.
• D) 0.16.
• E) 0.25.

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Definitions:

Compounded Semiannually

Interest that is calculated and added to the principal twice a year, leading to interest on interest.

Present Value

The contemporary value of a future monetary sum or cash flow stream, calculated with a set rate of return.

Compounded Semi-annually

The process of adding interest to the principal sum of a deposit or loan every six months, so that each subsequent interest calculation is based on the original principal plus all accumulated interest.

Ordinary Annuity

A series of equal payments made at equal intervals of time, with the first payment occurring at the end of the period.