Question

A mutual fund has earned annual returns of 11%, -5% and 33% over the past three years. If the average risk-free rate during that time was 2% per year, what was this fund's Sharpe Ratio during that time period?

Answer 1

Answer = 0.58

Note:

1. Average Return = Sum of returns / Period

= (11%-5%+33%)/3

= 13%

2. Standard Deviation:

standard deviation = [Sum of Deviation Squared / (Number of Periods -1)]^(1/2)

=[728/2]^(1/2)

=19.07878402833890 %

Probable Return	Deviation ( Probable Return- Expected Return)	Deviation Squared
11	-2.000	4
-5	-18.000	324
33	20.000	400
	Deviation Squared Total	728.00

3. Sharpe Ratio = (Average return - risk free rate) / Standard Deviation

= [ 13%-2%] /19.07878402833890 %

= 0.58