Unit 23

Question 1

Sharpe Ratio

Answer 1

Known as risk premium

Measures risk adjusted return.

Actual Return - RF / Std Dev

Std deviation is systematic and unsystematic risk, so beta not needed.

Question 2

IRR Notes

Answer 2

• preferred method of measuring returns for DPPs
• takes into consideration the time value of money.
• used to compute YTM

Question 3

Time-weighted return

Dollar-weighted return

Answer 3

Time-weighted returns - does not reflect IRR. Calculated without regard to future cash flows. Performance of an investment over time.

Dollar-weighted returns - reflects IRR. Considers subsequent contributions and withdrawals.

Question 4

Wilshire 5000

Answer 4

Broadest index

All equity securities with readily available price data.