CISI Investment Advice Diploma Exam

What is the 'Sharpe ratio' and what does it measure?

The ratio of a portfolio's gross return to its benchmark return A measure of risk-adjusted return calculated by dividing the portfolio's excess return (above the risk-free rate) by its standard deviation The ratio of a fund's annual management charge to its alpha generation The ratio of a portfolio's equity allocation to its bond allocation

Correct Answer:

A measure of risk-adjusted return calculated by dividing the portfolio's excess return (above the risk-free rate) by its standard deviation

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