The Sharpe ratio is the average equity risk premium over a period of time divided by the standard deviation. From 1926 to 2020 the average risk premium (relative to Treasury bills)

for large-company stocks was 8.9 percent while the standard deviation was 19.7 percent. The Sharpe ratio of this sample is computed as:

The Sharpe ratio is sometimes referred to as the reward-to-risk ratio where the reward is the average excess return and the risk is the standard deviation.

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Sharpe ratio= .089/.197= .452