I think I have lost my complete mind. There are sharpe ratios at the bottom of pg. 132 in Reading 14. Anybody know the numbers they are using for required return (risk-free rate) vs. actual return (expected return in this case) to get the numerator of the sharpe ratio. I could really use a footnote. Thanks CFAI. Using the nominal numbers (9.9% expected return and 9.4% standard deviation), the required return should technically be around 4.5%. Maybe because they don’t give the risk-free asset return, we aren’t supposed to be able to compute it. Maybe its just too late…
Wow. I just figured this out. Sorry to send anyone on a wild goose chase. CFAI is assuming that the risk-free asset is the cash equivalent yield in the asset classes above. I am used to seeing this as a treasury yield and I can’t think out of the box. That is where 4.5% is coming from. Now I have fully embarrassed myself on the forum. Good start.
embarrased? that is if u hv someone to impress bcos we are in this game together