Which of the Following Measures Uses the Standard Deviation and Evaluates

question 68

Multiple Choice

Which of the following measures uses the standard deviation and evaluates portfolio performance on the basis of both return and diversification.

• A) Jensen's alpha
• B) Treynor measure
• C) M2
• D) Sharpe ratio

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Definitions:

Opportunity Costs

Opportunity costs represent the benefits a person or business misses out on when choosing one alternative over another.

Implicit Costs

The opportunity costs of using resources that a firm already owns, representing the income the firm foregoes by using those resources internally rather than renting or selling them.

Explicit Costs

Explicit costs are direct, out-of-pocket payments for resources or services needed for production, such as wages, rent, and materials; they're easily quantifiable and recorded.

Explicit Costs

Direct, out-of-pocket expenses incurred in conducting a business activity or making a decision.