Explain the Type of Risk Measured by Each of the Following

question 55

Essay

Explain the type of risk measured by each of the following measures. Also identify the factor in each formula that determines the type of risk that is being measured.
(a) Jensen's measure
(b) Sharpe's measure
(c) Treynor's measure

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Definitions:

Discount Rate

For the purpose of discounted cash flow analysis, this rate of interest is key in determining the existing value of forthcoming cash flows.

Operating Costs

Expenses related to the day-to-day functions of a business, excluding direct materials and direct labor costs.

Donut Maker

A kitchen appliance or tool specifically designed for making donuts.

Simple Rate of Return

A calculation that measures the profitability of an investment as a percentage of the original investment, ignoring the time value of money and other factors like cash flows over time.