One Property of a Risky Portfolio That Combines an Active

question 20

Multiple Choice

One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's

• A)Sharpe ratio.
• B)information ratio.
• C)alpha.
• D)Treynor measure.
• E)None of the options

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Definitions:

Adjusted Net Income

Net income adjusted for specific expenses, revenues, gains, or losses to provide a clearer picture of operational performance.

After-Tax Net Income

The amount of profit left over after all expenses, including taxes, have been deducted from total revenue; represents the bottom line for a company.

Cost Method

An accounting approach used for investments where the investor has little to no influence over the investee, recording the investment at cost and recognizing income only when dividends are received.

Elimination

In accounting, the process of removing intercompany transactions and balances from the financial statements of a group of companies consolidated as one entity.