Sharpe ratio Study guides, Revision notes & Summaries

Sharpe Ratio Sharpe Ratio = (E(R) - RFR) / σ Larger ratio is better If (Rt) is higher than RFR, then it becomes Safety First Ratio Central Limit Theorem If we take samples of a population, with a large enough sample size, the distribution of all sample means is normal with: - A mean equal to the population mean - A variance equal to the population variance divided by sample size (σ² / n) Standard Error of Sample Mean σ / n^½ Binomial Probability One of two possible outcomes (i.e...

Consider the following limit order book of a specialist in a market that allows partial execution of orders. The last trade in the stock took place at a price of $35. Bid Bid Qty Ask Qty Ask 34.75 100 800 35.25 34.25 100 1,000 35.50 33.50 400 2,000 35.75 32.25 200 800 36.00 You place a market sell order for 150 shares. What are your proceeds and what is the new stock price? A) $5; 187:50 ; $34:75 B) $5; 187:50 ; $34:25 C) $5; 325:00 ; $35:00 D) $5; 287:50 ; $35:25 E) $5; 287:50 ; $3...

Comprehensive summary of Finance (econometrics EUR)

Question #1 of 37 Billy Kramer is deciding whether or not to add an emerging markets fund to his current 401k which is broadly diversified among a mix of bond and equity funds. His current portfolio has an expected return of 9% with a standard deviation of 10%. The emerging markets fund has an expected return of 16%, a standard deviation of 21%, and a correlation of .74 with Kramer's current portfolio. Assume the risk free rate is 3%. Given this information, should Kramer add the emerging marke...

1. You are given the following information regarding prices for stocks of the following firms: Price Stock Number of shares T T+1 Beximco 1,000,000 60 80 BATBC 10,000,000 20 35 Bank Asia 30,000,000 18 25 a. Construct a price-weighted index for these three stocks, and compute the percentage change in the series for the period from T to T + 1. Assume a starting index value of 10,000 points. b. Construct a value-weighted index for these three stocks, and compute the percentage change in ...

Alpha - Answer-Measure of risk-adjusted performance Beta - Answer-Measure of a fund's or a stock's risk in relation to the market or to an alternative benchmark Gamma - Answer-Ratio of a change in the option delta to a small change in the price of the asset on which the option is written PERS - Answer-Public Employee Retirement System CAFR - Answer-Comprehensive Annual Financial Report PERS CAFR - Answer-Comprehensive Annual Financial Report for a Public Employee Retirement System ...

Nominal vs Real Interest Rate (+ Equations)Nominal interest rate: the growth rate of your $ as quoted on the investment Real interest rate: the growth rate of your purchasing power Approximation: r(r) = r(n) - i Exact: r(r) = (1+r)/(1+i) - 1 Fisher equation: r(n) = r(r) - E(i) What does the Sharpe Ratio measure?It is equal to the risk premium of portfolio divided by standard deviation. It measures tradeoff between return and risk. Three properties of a normal distribution1) Symmetric ...

Addition Rule of Probability correct answer: ADDITION: P(A or B) = P(A) + P(B) - P(AB) Roy's Safety First Criterion correct answer: Safety First Ratio = (E(R) - Rₜ) / σ Larger ratio is better If (Rₜ) is risk free rate, then it becomes Sharpe Ratio Sharpe Ratio correct answer: Sharpe Ratio = (E(R) - RFR) / σ Larger ratio is better If (Rt) is higher than RFR, then it becomes Safety First Ratio Central Limit Theorem correct answer: If we take samples of a population,...

Jensen's Alpha correct answer: Portfolio ER- (risk free rate + beta ( market index ER - Risk free rate)) Sharpe Ratio correct answer: Expected annual return (portfolio) - risk free rate / σ portfolio Non-systematic risk #1 correct answer: (σ of portfolio)²- (β of portfolio)² (σ of market)² Treynor Black Appraisal Ratio correct answer: Alpha / √non systematic risk Non-systematic risk #2 correct answer: (1 -R² to market index) (σ portfolio)² Information Ratio corre...

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