Q:
A:
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) Riskadjusted return
b) Sharpe ratio
c) Pricetoearnings ratio
d) Internal rate of return
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) Riskadjusted return
b) Sharpe ratio
c) Pricetoearnings ratio
d) Internal rate of return
Â
The correct answer is a):
The riskadjusted 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 securityâ€™s beta.
Riskadjusted return is usually measured by assigning
the security an alpha rating. The sharpe ratio uses
standard deviation as a performance measure.
The riskadjusted 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 securityâ€™s beta.
Riskadjusted 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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