Consider two portfolios, Portfolio A and Portfolio B, with the following performance metrics: - Portfolio A has a Sharpe Ratio of 0.8, a Treynor Ratio of 1.2, and a Jensen's Alpha of 0.5. - Portfolio B has a Sharpe Ratio of 1.2, a Treynor Ratio of 0.9, and a Jensen's Alpha of -0.2. Which of the following statements is correct regarding the performance of these portfolios? Portfolio A has a higher risk-adjusted return when the risk is measured by the beta. Portfolio B outperforms the risk-adjusted return suggested by CAPM.
Consider two portfolios, Portfolio A and Portfolio B, with the following performance metrics: - Portfolio A has a Sharpe Ratio of 0.8, a Treynor Ratio of 1.2, and a Jensen's Alpha of 0.5. - Portfolio B has a Sharpe Ratio of 1.2, a Treynor Ratio of 0.9, and a Jensen's Alpha of -0.2. Which of the following statements is correct regarding the performance of these portfolios? Portfolio A has a higher risk-adjusted return when the risk is measured by the beta. Portfolio B outperforms the risk-adjusted return suggested by CAPM.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Consider two portfolios, Portfolio A and Portfolio B, with the following performance
metrics:
- Portfolio A has a Sharpe Ratio of 0.8, a Treynor Ratio of 1.2, and a Jensen's Alpha of
0.5.
- Portfolio B has a Sharpe Ratio of 1.2, a Treynor Ratio of 0.9, and a Jensen's Alpha of
-0.2.
Which of the following statements is correct regarding the performance of these
portfolios?
Portfolio A has a higher risk-adjusted return when the risk is measured by the
beta.
Portfolio B outperforms the risk-adjusted return suggested by CAPM.
Portfolio A and B have similar risk-adjusted returns, but Portfolio B exhibits
negative abnormal returns.
Portfolio B has a higher risk-adjusted return when the risk is measured by the
standard deviation.
Portfolio A outperforms Portfolio B in terms of both risk-adjusted return and
abnormal returns suggested by CAPM.
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