- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 38. Analysis of Active Portfolio Management
- Subject 2. Comparing Risk and Return
CFA Practice Question
Which statement about the Sharpe ratio is false?
B. A portfolio with a Sharpe ratio of 0.8 is 2 times better than a portfolio with a Sharpe ratio of 0.4.
C. The Sharpe ratio for one stock can be different among different investors.
A. The Sharpe ratio cannot be applied to risk-free assets.
B. A portfolio with a Sharpe ratio of 0.8 is 2 times better than a portfolio with a Sharpe ratio of 0.4.
C. The Sharpe ratio for one stock can be different among different investors.
Correct Answer: B
A is true. The zero standard deviation of such assets cannot be used as the denominator.
B is false. The Sharpe ratio can be used to rank portfolios but does not give any information about the economic significance of differences.
C is true. If the Sharpe ratio is used as an ex ante measure of expected return and risk, it will likely vary among different investors.
User Contributed Comments 4
| User | Comment |
|---|---|
| fredpat01 | Can someone explain why C is correct? |
| cosmos1994 | Different Investors have different portfolios hence different denominators |
| Konstantis | And different returns |
| davidt87 | historical sharpe ratio cant be different, but if youre using expected returns, then your expectations can be different |