Portfolios AAA and BBB as shown in the table blow lies very close to the Capital Market Line (CML).

Portfolio Average Annual Rate of Excess Return Standard Deviation of Excess Return

ASX200 Index

Fund 5% 20%

AAA 6% 21%

BBB 7% 23%

a)You are choosing one of the three portfolios by considering the Sharpe Ratio, Treynor Ratio and Jensen-Alpha. Briefly discuss which one you would choose to optimiserisk-adjusted return. Justify your choice by providing evidence usingsuitableperformance measurement. [4]

b)Briefly discusstwolimitations of your choice in (a). [2]

c)In light of your answer in (b), provide a better alternative portfolio evaluation index. Provide justifications for your choice. [2]