Question

Consider an asset with a beta of 1.2, a risk-free rate of 4.4%, and a market return of 12.4%. What is the reward to risk ratio?

Answer 1

Answer: 8%

Explanation:

Reward to risk ratio = (Expected return - Risk free rate) / Beta

Expected return = Risk free rate + Beta * ( Market return - Risk free rate)

= 4.4% + 1.2 * (12.4% - 4.4%)

= 14%

Reward to risk ratio = (14% - 4.4%) / 1.2

= 8%