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1.
A fund with a negative alpha _______.
Has returned less than you'd expect, given its beta. Alpha hinges on beta, not standard deviation. Funds with positive alphas have returned more than their betas suggested they would return.
2.
A high alpha for a fund proves good management skill on the part of the fund's management.
False. Alpha cannot prove such skill, though it can be interpreted that way.
3.
Standard deviation lets us use the Sharpe ratio to compare risk-adjusted returns of funds in different categories.
True. Standard deviation is calculated the exact same way for any type of fund, be it stock or bond.
4.
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?
1.8. To calculate Sharpe ratio, subtract the T-bill return from the fund's return, and divide by standard deviation.
5.
Alpha _______ distinguish between underperformance caused by incompetence and underperformance caused by fees.
Does not. Alpha does not distinguish between these two.
