Question related to sortino ratio

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Question related to sortino ratio

Postby shubhankar.limaye » Fri Feb 13, 2015 10:57 am

I am not able to understand the solution to problem given below

An analyst has compiled the following information on a portfolio:
Sortino Ratio: 0.82
Beta: 1.15
Expected return: 12.2%
Standard deviation: 16.4%
Benchmark return: 11.9%
Risk-free rate: 4.75%
Calculate the semi-standard deviation of the portfolio?
Select one:
a. 8.2%
b. 14.9%
c. 0.4%
d. 9.08%
The correct answer is D.
This question is really a test as to whether the candidate knows the components of the Sortino ratio.
The Sortino Ratio = Average Portfolio Return – Risk-free Rate Semi-standard Deviation (SSD) 0.82 = 12.2 – 4.75 = 12.2 – 4.75/0.82 = 9.08%
The correct answer is: 9.08%.

Now I am unable to get why 4.75 is taken as target return and why 12.2 is expected return (calculating using beta yields 12.9725).

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Question related to sortino ratio

Postby edupristine » Mon Feb 16, 2015 7:11 am

Hi, your query has been resolved. Sortino Ratio = (Expected Return-Benchmark Return)/ Semi Standard Deviation. According to the question, 0.82= (0.122-0.119)/semi standard deviation. Hence, Semi Standard Deviation= 0.4% approximately.

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