Lecture 5

Question 1

Sharpe ratio

Answer 1

= Ri - RFR/Sigma
- risk premium return per unit of total risk

Question 2

Treynor ratio

Answer 2

T= (Ri-RFR)/Beta
Risk premium return per unit of systematic risk
- ignores the diversification of a portfolio and only looks at undiversifiable risk

Question 3

Jensen alpha

Answer 3

Actual returns in excess of expected returns adjusted for risk