Evaluating Risk-Adjusted Performance Using Sharpe Ratio

Hard Performance Evaluation Risk-adjusted Performance

A portfolio manager, Sarah, is evaluating the performance of her investment fund over a one-year period. The fund's return was 12%, while the benchmark’s return was 10%. The fund had a standard deviation of 15%, whereas the benchmark had a standard deviation of 10%. Sarah is assessing the risk-adjusted performance of the fund using the Sharpe ratio.

The risk-free rate during the evaluation period was 3%. Based on this information, what can Sarah conclude regarding the fund’s risk-adjusted performance compared to the benchmark?

The fund outperformed the benchmark on a risk-adjusted basis.

The benchmark outperformed the fund on a risk-adjusted basis.

Both the fund and the benchmark have the same risk-adjusted performance.

Hint

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% Correct85%