Chartered Investment Manager (CIM) Practice Exam · Question
Which performance measurement metric directly accounts for the risk taken to achieve a certain return?
The Sharpe ratio measures the excess return (or risk premium) per unit of total risk (standard deviation) in an investment. A higher Sharpe ratio indicates bett
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Question: Which performance measurement metric directly accounts for the risk taken to achieve a certain return?
Answer options:
- Arithmetic mean return.
- Geometric mean return. ✅ Sharpe ratio.
- Total return.
Correct answer: Sharpe ratio.
Explanation: The Sharpe ratio measures the excess return (or risk premium) per unit of total risk (standard deviation) in an investment. A higher Sharpe ratio indicates better risk-adjusted performance.
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