Question

Asset A has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-variability ratio

Answer 1

Answer:

0.4 or 40%

Explanation:

the formula used to calculate the reward variability ratio is:

reward variability ratio = (expected return - risk free rate) / standard deviation = (20% - 10%) / 25% = 10% / 25% = 0.4 = 40%

The reward variability ratio measures the return of a project, stock or investment, adjusted for its variability (standard deviation) compared to the risk free rate.