Canadian Securities Course (CSC) Practice Exam · Question
A Canadian portfolio manager is analyzing a new equity fund for potential inclusion in client portfolios. The fund has an average annual return of 10% over the past five years, with a standard deviation of 15%. The market (S&P/TSX Composite) returned 8% annually with a standard deviation of 12% over the same period. The risk-free rate is 2%. What is the Sharpe Ratio of the fund?
The Sharpe Ratio is calculated as (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation. For the fund: (10% - 2%) / 15% = 8% / 15% = 0.53.
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Question: A Canadian portfolio manager is analyzing a new equity fund for potential inclusion in client portfolios. The fund has an average annual return of 10% over the past five years, with a standard deviation of 15%. The market (S&P/TSX Composite) returned 8% annually with a standard deviation of 12% over the same period. The risk-free rate is 2%. What is the Sharpe Ratio of the fund?
Answer options: ✅ 0.53
- 0.40
- 0.67
- 0.75
Correct answer: 0.53
Explanation: The Sharpe Ratio is calculated as (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation. For the fund: (10% - 2%) / 15% = 8% / 15% = 0.53.
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