Economics & AnalysisQuestion 15 of 110
Which statement about the Sharpe ratio is correct?
a.It measures return earned per unit of total risk, using standard deviation
b.It measures return earned per unit of systematic risk, using beta
c.A lower Sharpe ratio indicates better risk-adjusted performance
d.It ignores the risk-free rate entirely
Explanation
The Sharpe ratio divides a portfolio's excess return over the risk-free rate by its standard deviation, measuring reward per unit of total risk. A higher ratio indicates better risk-adjusted performance. The Treynor ratio, by contrast, uses beta as the risk measure.
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