Question

How do you calculate the sample mean excess return of the risk free rate ? (possibly with excel)

Answer 1

Step :- 1

First of all enter the data of the rerunron the security over the years in column.

4 Time Period B Yearly Returns 0.259 0.198 0.364 -0.081 0.057 0.055 0.188 0.317 0.24 0.184 -0.01 0.526

Step :- 2

Then in next column enter the risk free interest rate data.

4 Risk Free Return 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

Step :- 3

Then in the next column, subtract the risk free returns from the returns on our security. This will called Excess Return.

5 7 4. Excess Return =B5C5 0.148 0.314 -0.131 0.007 0.005 11 0.138 0.267 13 0.19 14 0.134 15 -0.06 16 0.476

Step :- 4

• Now let's calculat the excess return. In the above sheet it will be calculate by the =AVERAGE (D15:D16).
• calculate the standard deviations of the Excess Return. For above example it will be =STDEV(D5:D16)
• Finally calculate the sharpe's ratio by the dividing the average excess return by the standard deviations of the same. In our example the formula will be =D18/D19

D C 18 Average 19 Standard Deviation 20 Sharpe Ratio 0.141417 0.16949 0.834364

Thanks for posting.....

i hope my efforts will be fruitful to you...?