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.

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RELATED TERMS
  1. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, ...
  2. Risk-Free Rate Of Return

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    1. A measure of the dispersion of a set of data from its mean. ...
  4. Risk-Free Return

    The theoretical rate of return attributed to an investment with ...
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    The chance that an investment's actual return will be different ...
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