QUESTION

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VOWLEDGE CHECK Joaquim recently learned about a fund that boasted a $25 \%$ return in its marketing materials Eagerly, he invested $\$ 100,000$ without doing any research into the fund. A year later, he had $\$ 125,000$ in the bank. However, he was not pleased with the high return once he leamed about the Sharpe Ratio. What is the most likely reason why? He learned that the portfolio's volatility was $5 \%$, so he could have lost $\$ 5,000$. Taking on this level of risk may not justify the return. He learned that the portfolio's volatility was $50 \%$, so he could have lost $\$ 100,000$. Taking on this level of risk may not justify the return. He learned that the portfolio's volatility was $50 \%$, so he could have made or lost $\$ 50,000$. Taking on this level of risk may not justify the return. He learned that the portfolio's volatility was $5 \%$, so he could have made $\$ 100,000$. Taking on this level of risk justifies the return.

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