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Basic Question 3 of 13
Investor A puts all his money in a mutual fund. Investor B puts 30% of his equity in cash and the remaining 70% in the same fund. Which portfolio is expected to have a higher Sharpe ratio?
B. B
C. They have the same Sharpe ratio.
A. A
B. B
C. They have the same Sharpe ratio.
User Contributed Comments 4
| User | Comment |
|---|---|
| 1003669 | How? |
| morel-san | It's the return per unit of risk undertaken. It means that what ever amount you put into the mutual fund, you'll only be attributed a proportionate amount of risk. The more money is in the mutual fund, the higher your standard deviation and vice versa. It doesn't really matter what amount you put in actually. |
| morel-san | They'll have the same Sharpe but their Standard deviation will be different |
| davidt87 | morel-san, their std. dev. AND their return will be adjusted proportionally so that the Sharpe ratio is unaffected |
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Learning Outcome Statements
calculate and interpret the information ratio (ex post and ex ante) and contrast it to the Sharpe ratio;
CFA® 2025 Level II Curriculum, Volume 6, Module 38.