Calculate Sharpe Ratio for an Efficient Portfolio

The Sharpe ratio is a measure of risk-adjusted return, calculated by subtracting the risk-free rate from the expected return of an investment and dividing by the investment's standard deviation (volatility). It helps investors understand how much return they receive for taking on a certain level of risk.

In this case, we are given an efficient portfolio with an expected return of 16.4%, a volatility of 13.1%, and a risk-free rate of 3.6%. To calculate the Sharpe ratio, we can use the following formula:

Sharpe Ratio = (Expected Return - Risk-Free Rate) / Volatility

Plugging in the given values, we get:

Sharpe Ratio = (16.4% - 3.6%) / 13.1%

Sharpe Ratio = 12.8% / 13.1%

Sharpe Ratio ≈ 0.9775

Therefore, the Sharpe ratio for the efficient portfolio is approximately 0.9775. A higher Sharpe ratio generally indicates a better risk-adjusted return, meaning the investment is generating more return for the level of risk it takes on.