Certified Financial Planner (CFP) Practice Exam · Question
Given a diversified portfolio with a forecasted annual return of 7% and a standard deviation of 12%, and a risk-free rate of 2%. What is the portfolio's Sharpe Ratio?
The Sharpe Ratio is calculated as (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation. So, (0.07 - 0.02) / 0.12 = 0.05 / 0.12 = 0.417.
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Question: Given a diversified portfolio with a forecasted annual return of 7% and a standard deviation of 12%, and a risk-free rate of 2%. What is the portfolio's Sharpe Ratio?
Answer options: ✅ 0.417
- 0.250
- 0.583
- 0.050
Correct answer: 0.417
Explanation: The Sharpe Ratio is calculated as (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation. So, (0.07 - 0.02) / 0.12 = 0.05 / 0.12 = 0.417.
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