The critical variable in the determination of the success of the active portfolio is ________.
A)alpha/systematic risk
B)alpha/nonsystematic risk
C)gamma/systematic risk
D)gamma/nonsystematic risk
E)none of the above

Question

Quizplus · Accepted Answer

The success of an active portfolio is largely determined by the alpha, which represents the ability of the portfolio manager to choose securities that outperform their respective benchmarks. However, alpha is affected by both systematic (market) and nonsystematic (idiosyncratic) risk. Since a portfolio manager can diversify away nonsystematic risk, the critical variable in the determination of success is alpha/nonsystematic risk.

The Critical Variable in the Determination of the Success of the Active