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1
A stock with a positive Jensen's alpha is overpriced.
A)True
B)False
2
The 2-year variance is equal to twice the 1-year variance.
A)True
B)False
3
The Sharpe ratio is more applicable to an individual security than to a diversified portfolio.
A)True
B)False
4
You are comparing investments with the following Sharpe ratios. Which investment appears superior based on this information?
A)-.019
B).25
C).50
D).68
E).92
5
Susquehanna Markets stock has an average return of 9.1 percent, a beta of .72, and a Sharpe ratio of .47. What is the variance of the stock if the risk-free rate is 3.8 percent?
A).010098
B).011276
C).012716
D).013333
E).014141
6
The Treynor ratio is more applicable to individual securities than the Sharpe ratio because the Treynor ratio:
A)considers the risk premium applicable to the individual security.
B)considers both return and risk.
C)is based on systematic risk only.
D)considers the total risk related to a security.
E)considers the current level of the risk-free rate.
7
The Treadwater Tire Co. has a Jensen's alpha of 1.2 and a Treynor ratio of 0.3. Given this, you know that the stock will plot _____ the security market line (SML) and that the stock is _____ according to the Capital Asset Pricing Model (CAPM).
A)above; overvalued
B)above; undervalued
C)on; correctly valued
D)below; overvalued
E)below; undervalued
8
Hanover Furniture stock has a beta of 1.21 and a realized return of 13.4 percent. The market return is 11.3 percent and the risk-free rate is 3.8 percent. What is the alpha of this stock?
A)-0.89 percent
B)-0.14 percent
C)0.28 percent
D)0.53 percent
E)1.09 percent
9
A stock has a beta of 1.42 and an actual return of 18.48 percent. The market return is 12.5 percent and the risk-free rate is 4 percent. What is the Jensen-Treynor alpha of this stock?
A).02
B).05
C).07
D).10
E).12
10
You have a portfolio which is invested 60 percent in Fund A and 40 percent in Fund B. Fund A has a return of 17 percent and a standard deviation of 14.2 percent. Fund B has a return of 8 percent and a standard deviation of 5.3 percent. The correlation between the funds is .35. What is the portfolio's Sharpe ratio if the risk-free rate is 4.5 percent?
A).42
B).55
C).73
D).81
E).94





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