A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio (E (r_p) - r_L/sigma_P) of __

a. 0 65

b. 0.50

c. 0.42

d. 0.35

c. 0.42

Explanation:

The formula and the computation of the sharpe ratio is shown below:

= (Generated yearly return - T-bill) : (standard deviation)

= (0.15 - 0.045) : (0.25)

= (0.105) : (0.25)

= 0.42

We simply deduct the T-bill from the yearly return generated and then divided it by the standard deviation so that the ratio can be achieved