What two components are used to calculate risk-adjusted return? I ...

By Investopedia Staff AAA
Q:

What two components are used to calculate risk-adjusted return?
I. Risk-free rate of return
II. Correlation coefficient
III. Conversion ratio
IV. Standard deviation

A) I and III
B) I and IV
C) II and III
D) III and IV
A:
The correct answer is b.
Standard deviation and the risk-free rate of return are used to calculate or measure return based on the level of risk taken using what is called the Sharpe Ratio. Standard deviation is a measure of a portfolio’s total risk. The risk-free rate of return is usually the current rate of short-term Treasury bills. Correlation coefficient is a measure of how performance between different investments correlates. The conversion ratio is the number of shares of stock received when a convertible bond or preferred stock is converted by the holder.

RELATED FAQS

  1. Which of the following statements is (are) true with respect to the calculation of ...

    The correct answer is: a) (I) is incorrect because results that cover a period of less than a year must "not" be annualized. ...
  2. Which of the following terms are associated with the purchase/redemption of open-end ...

    The correct answer is b. Forward pricing is the SEC Rule that requires all transactions in open-end investment company shares ...
  3. Joanne Bume, CFA, is the head of research at large brokerage firm ...

    The correct answer is: a) The proper course of action would simply be to place Universal Airlines on a restricted list until ...
  4. A registered representative has been following PDQ stock in the market over the past ...

    The correct answer is c. Current yield compares the current price of acquiring the stock to the income from the stock, the ...
RELATED TERMS
  1. Series 79

    A examination to ensure a candidate is qualified to become a ...
  2. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  3. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  4. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  5. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...

You May Also Like

Related Articles
  1. Insurance

    Municipal Bond Tips For The Series 7 ...

  2. Retirement

    6 Proven Tips For Series 6 Success

  3. Insurance

    Tips For Passing The Series 6 Exam

  4. Professionals

    Banker Or Broker: Which Career Is Right ...

  5. Professionals

    Breaking Down Financial Securities Licenses

Trading Center