Can you give a mathematical example of the calculation of the Sharpe ratio?

Question

The Sharpe ratio is a measure of return per unit of risk in investing.

Answer 1

Expected excess return divided by the standard deviation of excess expected returns.

E[r]/Vol(r)

where r is the excess return of the instrument (return of the asset minus the return of the risk free security). Vol is the volatility -- or standard deviation of excess return.

The S&P 500 has an excess return of 6%-7% and a standard deviation of returns of about 18% -- so the Sharpe Ratio is about 1/3

Answer 2

Yes!