- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 45. Analysis of Active Portfolio Management
- Subject 2. Comparing Risk and Return

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**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.

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**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 |