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The higher a fund's Sharpe ratio, _______.

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The greater its risk

The greater its returns

The greater its returns given the amount of risk it's taking on

The greater its returns given the amount of risk it's taking on. The Sharpe ratio is based on the relationship between a fund's risk as measured by standard deviation and its returns.

Standard deviation lets us use the Sharpe ratio to compare risk-adjusted returns of funds in different categories.

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True

False

True. Standard deviation is calculated the exact same way for any type of fund, be it stock or bond.

Alpha _______ distinguish between underperformance caused by incompetence and underperformance caused by fees.

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Does

Does not

Usually does

Does not. Alpha does not distinguish between these two.

A high alpha for a fund proves good management skill on the part of the fund's management.

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True

False

False. Alpha cannot prove such skill, though it can be interpreted that way.

What is alpha?

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The difference between a fund's expected returns based on its beta and its actual returns

The degree to which a fund's returns move up or down given a gain or loss of its benchmark

The ratio of price to earnings

The difference between a fund's expected returns based on its beta and its actual returns.

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