5. The Sharp ratio of a portfolio is defined as A. the ratio between the return of the portfolio and the variance of return of the portfolio B. the ratio between the excess return (excess return is the difference between the return and the risk-free return) and the variance of the return of the portfolio C. the ratio between the return and the standard deviation of the return of the portfolio D. the ratio between the excess return and the standard deviation of the return of the portfolio

6. Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Return Weight Weight Weight Return Return Stock 0.5 -4.0% 0.6 -5.0% 0.3 -5.0% Bonds 0.3 -3.5 0.2 -2.5 0.4 -3.5 0.1 Cash 0.3 0.3 0.3 0.3 0.3 Evaluation of Asset Management a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfo- lio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the allocation effect for Manager B. Using these numbers in conjunction with your results from part (a), comment on whether these managers have added value through their selection skills, their allocation skills, or both.

What is the Capital Asset Pricing Model (CAPM)? Derive the risk premium when beta is between 0 and 1. Interpret your result.

According to modern financial theory, the correct measure of risk is O Idiosyncratic Risk Variance Beta Standard Deviation Volatility