The Sharpe's Measure for Jane Smith's Investment Portfolio Is 0

question 8

Multiple Choice

The Sharpe's measure for Jane Smith's investment portfolio is 0.40, while the Sharpe's measure for the market is 0.30. This information suggests that Smith's portfolio

• A) exhibits superior performance because its risk premium per unit of risk is above that of the market.
• B) exhibits poor performance because its risk premium per unit of risk is below that of the market.
• C) is inadequately diversified, and more securities should be added to the portfolio in order to bring it in line with the market.
• D) is overly diversified, and some securities should be sold to bring the portfolio in line with the market.

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Definitions:

Standard Direct Labour-Hours

The estimated amount of labor time that should be required to produce one unit of a product.

Fixed Manufacturing Overhead Rate

The rate at which fixed manufacturing overhead costs are allocated to products, typically based on labor hours or machine hours.

Fixed Overhead Budget Variance

The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs.

Applied Fixed Overhead Cost

The portion of fixed overhead costs that is allocated to the production process during a specific period.