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Asset A has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-volatility ratio?

Answer :

pedrocarratore

Answer:

0.4 or 40%

Explanation:

The reward-to-volatility ratio, also known as the Sharpe ratio, is defined as the difference between the expected return rate and the risk-free rate divided by the standard deviation.

Expected return = 0.2

Risk-free rate = 0.10

Standard deviation = 0.25

[tex]S=\frac{0.2-0.1}{0.25}\\S=0.4= 40\%[/tex]

The reward-to-volatility ratio is 0.4 or 40%

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