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A measure of risk adjusted performance that is often used in practice is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation.

a.The standard deviations and returns for the funds over the past 10 years are listed below. Assuming a risk free rate of 4%, calculate the Sharpe ratio for each of these. In broad terms, what do you suppose the Sharpe ratio is intended to measure?

Fund 10 year Annual Return Standard Deviation
Arias S&P 500 Index Fund 11.48% 15.82%
Arias Small Cap Fund 16.68% 19.64%
Arias Large Company Stock Fund 11.85% 16.01%
Arias Bond Fund 9.67% 10.83%

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A measure of risk adjusted performance that is often used in practice is the Sharpe ratio. The Sharpe ratio is calculated as the risk premium of an asset divided by its standard deviation.

a. The standard deviations and returns for the funds over the past 10 years are listed below. Assuming a risk free rate of 4%, calculate the Sharpe ratio for each of these. In broad terms, what do you suppose the Sharpe ratio is intended to measure?

Fund ...

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