Example Sharpe Ratio and Risk Aversion Computation Essentials of Investment Course CFA Exam

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In this video, I discuss sharpe ratio. The Sharpe ratio is a measure of risk-adjusted return. Also, the Sharpe ratio describes how much excess return you receive for the volatility of holding a riskier asset. • Prerequisite: • • Chapter 5: Risk, Return and the Histo... • ✔️Accounting students and CPA Exam candidates, check my website for additional resources: https://farhatlectures.com/ • 📧Connect with me on social media: https://linktr.ee/farhatlectures • #CFAexam #riskaversion #Sharperatio • The sharpe ratio is a good measure for investors because it allows them to distinguish the amount of reward needed per unit of risk. This allows for risk averse investors to stay away from low reward high risk situation that they are uncomfortable with. The higher the ratio the better for an investor. • ince William Sharpe's creation of the Sharpe ratio in 1966, it has been one of the most referenced risk/return measures used in finance, and much of this popularity is attributed to its simplicity. The ratio's credibility was boosted further when Professor Sharpe won a Nobel Memorial Prize in Economic Sciences in 1990 for his work on the capital asset pricing model (CAPM). • • In this article, we'll break down the Sharpe ratio and its components. • • The Sharpe Ratio Defined • Most finance people understand how to calculate the Sharpe ratio and what it represents. The ratio describes how much excess return you receive for the extra volatility you endure for holding a riskier asset. Remember, you need compensation for the additional risk you take for not holding a risk-free asset.

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