Welcome back. In this video we will see how to calculate the Sharpe ratio for a mutual fund portfolio. Now in case you are not aware what is Sharpe ratio, please refer to the course mastering mutual fund investments part two of three, we have discussed what is Sharpe ratio and how it applies to a single mutual fund. Here we're going to see how Sharpe ratio can be calculated for a mutual fund portfolio. The formula for Sharpe ratio is ra minus RF divided by sigma p, where r is the expected return of the mutual fund portfolio, RF is a risk free rate, this free rate is what is the rate at which we are here to get a return. Now, this is normally the rate at which we get returns from government bonds in any country and sigma p is the standard deviation of the mutual fund portfolio.

Let us see how to calculate the Sharpe ratio for the sample mutual fund portfolio using Excel. So here we have our sample mutual fund portfolio. Now here we have seen that that we have covered The value of Ra, which is given here, then we consider risk free rate as 4%. we'd consider these three data's 4%. And then we have calculated the standard deviation also. Now we put the formula for Sharpe ratio, that is ra minus r f divided by standard deviation.

So we get a value of point nine nine. Thank you for listening. See you in the next lecture.