A portfolio manager is reviewing the annual performance of a balanced fund for a client. The fund generated an annual return of 9%, with a standard deviation of 15%. The market's annual return was 7%, and the risk-free rate (e.g., Canadian T-bill rate) was 2%. What is the Sharpe Ratio for this balanced fund?

Question: A portfolio manager is reviewing the annual performance of a balanced fund for a client. The fund generated an annual return of 9%, with a standard deviation of 15%. The market's annual return was 7%, and the risk-free rate (e.g., Canadian T-bill rate) was 2%. What is the Sharpe Ratio for this balanced fund?

Answer options:

• 0.20 ✅ 0.47
• 0.60
• 0.80

Correct answer: 0.47

Explanation: The Sharpe Ratio is calculated as (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation. For this fund, it is (9% - 2%) / 15% = 7% / 15% = 0.4667, which rounds to 0.47.