Financial Planner

Answer: B - The Sharpe index should be used as a performance measure for a client wanting to know the risk involved with a small portfolio. The Sharpe ratio provides a relative measure of the risk-adjusted performance of a portfolio based on total risk. Standard deviation is used as the measure for total risk. Because Sharpe uses standard deviation, it implies that the portfolio is not widely diversified making appropriate in working with a smaller portfolio. Because this is a relative measure, the Sharpe index must be used to compare alternative investments.