Coefficient of variation

CFA Level I Quant
#1

Mean annual return 4%

Mean excess return 8.6%

Standard deviation of annual returns 23.4%

Portfolio beta 1.6

The coefficient of variation and sharpe measure are

CV =1.318

Sharpe=0.37

CV=23.4%/[4% +1.6(8.6%)]

Sharpe =8.6%/23.4%

Please what is wrong wif this solution (coefficient of variation)

No risk free rate given.

#2

CV = σ/μ = 23.4% / 4% = 5.85

#3

Is that alll?

#4

Um . . . yup.

#5

mokpokpo: How did you assume that mean excess return is above the risk free rate? Did you solve any questions where you’ve used mean excess returns as returns in excess to the risk free rate? What is mean excess return? Excess of what?

#6

This was a solution in a book…i just copied it here.I didn’t understand it

#7

Okay. Thanks for reverting back.

#8

It seems the denominator is “re-inventing the wheel” by trying to calculate portfolio return, which is not needed because the mean annual return is given as Magician used above.

It looks even fundamentally incorrect because it is implying the 4 percent is risk-free and the 8.6 percent is excess MARKET return over risk-free, which is questionable! But this is only an opinion, obviously haven’t seen the actual question … There may be other facts, eg reference to market return?

#9

thanks…cleared!!!