Why is Joaquim Not Pleased with His High Return Investment?

Why is Joaquim not happy with his high return investment?

Is it possible that the high return came with a high level of risk?

Final Answer:

Joaquim might not be pleased with the high return once he learned about the Sharpe Ratio because it is a measure of risk-adjusted return. The Sharpe Ratio takes into account the volatility of an investment and compares it to the return achieved.

Explanation:

Joaquim might not be pleased with the high return once he learned about the Sharpe Ratio because it is a measure of risk-adjusted return. The Sharpe Ratio takes into account the volatility of an investment and compares it to the return achieved. A high return alone does not necessarily indicate whether an investment is a good choice or not; it is important to consider the risk involved.

In the case of Joaquim's investment, if the fund had a high return of 25% but also had high volatility or risk, the Sharpe Ratio may be lower, suggesting that the investment may not be as favorable as it initially appeared. In other words, the fund may have experienced large fluctuations in value which could be a cause for concern.

Therefore, even though Joaquim initially saw a high return on his investment, the realization of a potentially high level of risk associated with it as indicated by the Sharpe Ratio could be the reason why he is not pleased.