QUESTION 1

1. Comparing the performance of a portfolio to a benchmark such as a broad-based market index may not be very valid because:

   	a.	indexes have only non-systematic risk if you invest in them, so they are not a valid comparison to an actively managed portfolio.
   	b.	it is impossible to find the correct index that one should be comparing an actively-managed portfolio to.
   	c.	most indexes are price-weighted, and actively-managed portfolios ae more concerned with value-weighting.
   	d.	the portfolio may have assumed more risk than the index.

0.2 points

QUESTION 2

1. This measure represents the amount by which the average return of the portfolio deviates from the expected return given by the Capital Asset Pricing Model. A measure greater than zero suggests that the portfolio earned a rate of return in excess of the expected return of the portfolio.

   	a.	Sharpe ratio
   	b.	Treynor ratio
   	c.	Jensen's alpha
   	d.	beta

0.2 points

QUESTION 3

1. This measure computes the risk premium per unit of systematic risk. It uses the systematic risk of the portfolio as the risk parameter. The systematic risk is that part of the total risk of an asset which cannot be eliminated through diversification.

   	a.	Sharpe ratio
   	b.	Treynor ratio
   	c.	Jensen's alpha
   	d.	risk-free rate

0.2 points

QUESTION 4

1. This measure computes the risk premium of the investment portfolio per unit of total risk of the portfolio. The total risk is the standard deviation of returns of the portfolio.

   	a.	Sharpe ratio
   	b.	Treynor ratio
   	c.	Jensen's alpha
   	d.	Modigliani model

0.2 points

QUESTION 5

1. An alpha equal to zero suggests that:

   	a.	the portfolio earned a rate of return in excess of the expected return of the portfolio
   	b.	the portfolio earned a rate of return equal to the expected return of the portfolio
   	c.	the portfolio earned a rate of return less than the expected return of the portfolio
   	d.	the portfolio earned no return