Evaluating Sharpe Ratios of Two Funds

As a portfolio manager at a mid-sized investment firm, you have been evaluating two mutual funds for inclusion in your investment portfolio. Fund A has returned an annualized return of 12% over the last five years with a standard deviation of returns of 8%. Fund B has returned an annualized return of 10% over the same period with a standard deviation of returns of 4%. You are particularly interested in assessing which fund provides a better risk-adjusted return. You decide to calculate the Sharpe Ratio for both funds using a risk-free rate of 2%.

Calculate the Sharpe Ratios for both funds and determine which fund has the higher value.