CFA Practice Question

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CFA Practice Question

Which statement about the Sharpe ratio is false?

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
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