Question

8a. Calculate the Sharpe ratio for small-cap stocks. (Page 282)
U.S. Treasury bills average returns, 1926-2016 (risk-free rate)						3.4%
Small-cap stocks average return, 1926-2016						16.6%
Small-cap stocks standard deviation, 1926-2016						31.9%
Small-cap stock Sharpe ratio							(Solution: 0.41)
8b. Calculate the Sharpe ratio for large-cap stocks. (page 282)
Large-cap stocks average return, 1926-2016						12.0%
Large-cap stocks standard deviation, 1926-2016						19.9%
Large-cap stock Sharpe ratio							(Solution: 0.43)
8c. Compare the Sharpe ratios in 8a and 8b to suggest which class of stock was more rewarding to investors. Explain. (critical thinking)

Answer 1