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Determining the risk-adjusted performance of portfolio

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The equity portion of Bill Sharpe's investment portfolio consists of four different stocks. Bill would like to determine the overall risk-adjusted performance of the stocks, which have risen 20% in the past year. They are equally dollar-weighted and have an overall weighted beta of 1.4. The stock market has been strong lately, rising 14.3% during the past 12 months. The standard deviation of Bill's portfolio is 18% and the risk free rate is 2.5%. The coefficient of determination of Bill's portfolio with the market portfolio is 52 percent.

Question 1: Which one of the following measures should Bill use in determining the risk-adjusted performance of his portfolio, and why?

Option a. Sharpe index, since it takes into account the performance of the overall market FALSE

Option b. Sharpe index, since the portfolio is not fully diversified

Option c. Jensen index, since the portfolio contains only equities

Option d. Treynor index, since it measures overall risk

Reference no: EM132525325

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