The following information is available on three portfolios:
| Portfolio | Mean Return on the Portfolio(%) | Standard Deviation of the Return on the Portfolio(%) |
| D | 10 | 20 |
| E | 18 | 15 |
| F | 6 | 3 |
The risk-free rate is 4%. The portfolio that has the best risk-adjusted performance as measured by the Sharpe ratio is:
The Sharpe ratio is defined as: SP = (RP - RF )/SP .
In this case, SD = (10 - 4)/20 = 0.30
SE= (18 - 4)/15 = 0.9333
SF = (6 - 4)/3 = 0.6667
The portfolio with the best risk-adjusted performance as measured by the Sharpe ratio is the one with the highest Sharpe ratio: Portfolio E.