One Property of a Risky Portfolio That Combines an Active

question 14

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 above.

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Definitions:

Opportunity Cost

The cost of foregoing the next best alternative when making a decision or choosing to allocate resources in a particular way.

Production Possibility Frontier

A graph that shows all the highest possible production levels for two products, based on available resources and technological capabilities.

Increasing Opportunity Costs

The concept that the cost of forgoing the next best alternative increases as resources become more specialized in production.

Guns And Butter

A term used to describe a country's decision to allocate its resources between defense and civilian goods.