Table 1: Selected Performance Statistics, 1926-1988

Series	Annual Return (Geometric Mean Rate of Return)	Highest Annual Return	Lowest Annual Return	Standard Deviation of Annual Returns
Common Stock	10.0%	54.0%	-43.3%	20.9%
Small Company Stocks	12.3%	142.9%	-49.8%	35.6%
Long-term Corporate Bonds	5.0%	43.8%	-8.1%	8.4%
US Treasury Bills	3.5%	14.7%	0.0%	3.3%

Source: Malkiel, Burton Gordon. A Random Walk Down Wall Street. New York: Norton, 1973. Page 64.

1. Assuming a risk-free rate of 3.5%, calculate the Sharpe Ratio for each of the asset types above. Show your calculations. Which asset class offers the greatest return per unit of risk?

Answer rating: 100% (QA)

To calculate the Sharpe Ratio for each asset type provided in Table 1 we will use the formula Standa... View the full answer