[ 2009 FRM Sample Exam ] Investment Management Q4 derived, relative, following, statements, Investment

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4. Which of the following statements about the Sharpe ratio is false?

The Sharpe ratio considers both the systematic and unsystematic risks of a portfolio.

The Sharpe ratio is equal to the excess return of a portfolio over the risk-free rate divided by the total risk of the portfolio.

The Sharpe ratio cannot be used to evaluate relative performance of undiversified portfolios.

The Sharpe ratio is derived from the Capital Market Line.

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Correct answer is C

A is incorrect ? this statement is true.  Sharpe ratio considers the total risk of an undiversified portfoliofficeffice" />

B is incorrect ? this statement is true

C is correct ? this statement is false.  Sharpe ratio can evaluate relative performance of an undiversified portfolio

D is incorrect ? this statement is true.  Sharpe ratio is derived from portfolio theory and Capital Market Line

Reference: Amenc & Le Sourd. Portfolio Theory and Performance Analysis

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