Which of the following performance measures is zero for the risk-free asset?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A) II only
B) I and III only
C) I and II only
D) III only
E) I, II, and III

Question

Quizplus · Accepted Answer

The Treynor ratio, Sharpe ratio, and Jensen's alpha are all performance measures that can be zero for the risk-free asset. The Treynor and Sharpe ratios involve risk in their denominators (beta and standard deviation, respectively), which would be zero for a risk-free asset, making the ratios undefined or effectively zero in practical terms. Jensen's alpha measures a portfolio's excess return over its expected return based on the capital asset pricing model (CAPM), which would be zero for the risk-free asset since its actual return equals its expected return.

Which of the Following Performance Measures Is Zero for the Risk-Free