if the standard deviation of a fund returns is 13.35 and the return is 6% but the risk-free return in the market is 4.5% find the reward-to-variability ratio

Question

if the standard deviation of a fund returns is 13.35 and the return is 6% but the risk-free return in the market is 4.5% find the reward-to-variability ratio.

would the standard deviation be the same as 13.35%? if so would the RVR= 11.23%? and would the formula look like this RVR=1/.1335(.06-.045)

Answer 1

This is also known as the Sharpe ratio, named after its formulator William Sharp.

 

In symbols S = [E(R_a - R_b)]/σ

 

σ is the standard deviation, R_a is the asset return and R_b the "risk free" return.

 

In this case

 

S = (6 - 4.5)/13.35 = 0.11

 

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