Question 2:

MCQ - Bill Smith is evaluating the performance of four large-cap equity portfolios: Funds A, B, C, and D. As part of his analysis, Smith computed the Sharpe ratio and the Treynor measure for all four funds. Based on his finding, the ranks assigned to the four funds are as follows:

The difference in rankings for Funds A and D is most likely due to:

a. A lack of diversification in Fund A as compared to Fund D.

b. Different benchmarks used to evaluate each funds performance.

c. A difference in risk premiums.

\begin{tabular}{lcc} Fund & Treynor Measure & Rank Sharpe Ratio Rank \\ \hlineA & 1 & 4 \\ B & 2 & 3 \\ C & 3 & 2 \\ D & 4 & 1 \end{tabular}