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Sharpe's RVAR Measures the Slope of the Line Between RF

question 38

Essay

Sharpe's RVAR measures the slope of the line between RF and the portfolio being evaluated.If the line is plotted between RF and a market index,where would superior portfolios lie? Inferior portfolios?


Definitions:

Discount Rate

Within DCF analysis, it's the rate employed to compute the present economic value of expected future cash inflows.

Present Value

The current value of a future sum of money or stream of cash flows, discounted at a specific interest rate.

Compound Rate

The rate at which interest on an investment or loan is calculated on both the initial principal and the accumulated interest from previous periods.

Time Value of Money

The concept that a sum of money is worth more now than the same amount in the future due to its potential earning capacity.

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