Sharpe ratio formula: (portfolio return - risk-free rate) / standard deviation. How to calculate, interpret, and compare Sharpe ratios for investments.
Higher expected return requires accepting higher risk. Historical data: stocks > bonds > T-bills in return and risk.
U = E(R) - ½Aσ². Risk-averse investors (A>0) require compensation for bearing risk. Indifference curves slope upward.
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Utility Function
Where: A = risk aversion coefficient (A>0 for risk-averse)
CAL Equation
Where: Slope = Sharpe ratio of optimal portfolio
Free covers one Quants module. Premium opens all 10 subjects and 59 modules of CFA Level 1.
Utility Function
A = risk aversion (A>0: risk-averse)
CAL Equation
Slope = Sharpe ratio
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Use when:
Avoid when:
The Sharpe ratio measures:
Full cheat sheet, flashcards, mind map, and quiz for Portfolio Risk and Return: Part I.
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