Instruction: For each statement, begin by answering whether the statement is true or false. If you think a statement is false, explain your answer in ONE or TWO SENTENCES. If you think a statement is true, no explanation is required.

a. If stock A has a positive alpha and stock B has a negative alpha, then the Sharpe ratio of A cannot be smaller than the Sharpe ratio of B.

b. The dollar weighted average rate of return is always lower than the time weighted average rate of return for the same portfolio.

c. The observation that the stock market earns abnormal returns in every January provides supporting evidence that the market is in a weak form of market efficiency.

d. There are three main factors that limit the ability of an investor to profit from mispricing, namely, fundamental risk, implementation costs, and interest rate risk.

e. While options can be used to reduce systematic risk of stocks, they cannot reduce unsystematic risk of stocks because unsystematic risk can only be reduced through diversification.