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The Sharpe ratio normalises portfolio excess return using:
ATotal standard deviation of portfolio returns
BThe portfolio beta as denominator (within the standard regulatory framework)
CTracking error of the portfolio
DSkewness of return distribution
Answer & Solution
Correct answer: A. Total standard deviation of portfolio returns
1. Identify what the question asks: this concept maps to sharperatio (§11).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (A).
_Source: ICAI BoS CA Final Paper 2, Ch 6 "Portfolio Management"_
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