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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.

A fund's alpha is dependent on the legitimacy of its beta measurement.

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True

False

True. After all, it measures performance relative to beta.

If a fund returned 30% with a standard deviation of 15%, and the 90-day Treasury bill returned 3%, what's the fund's Sharpe ratio?

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1.8

2.0

2.2

1.8. To calculate Sharpe ratio, subtract the T-bill return from the fund's return, and divide by standard deviation.

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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