Question of the Week

Stocks with a positive alpha are considered to be underpriced, while those with a negative alpha are thought to be overpriced. If you are analyzing the alpha of a stock, you are most likely concerned with the:

a) Risk-adjusted return
b) Sharpe ratio
c) Price-to-earnings ratio
d) Internal rate of return

Answer:

The correct answer is a):

The risk-adjusted return attempts to measure the risks taken to achieve a desired return. Alpha refers to the excess return over the expected return for the level of risk implied by the security’s beta. Risk-adjusted return is usually measured by assigning the security an alpha rating. The sharpe ratio uses standard deviation as a performance measure.

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    Where can I look for a financial planner?

    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
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