Question: Suppose two portfolios have the same average return and the same beta, but Portfolio A has a lower standard deviation of returns than Portfolio B.

Suppose two portfolios have the same average return and the same beta, but Portfolio A has a lower standard deviation of returns than Portfolio B. According to the T^2 (Treynor-squared) measure, the performance of Portfolio A:

Is the same as the performance of Portfolio B.

Is better than the performance of Portfolio B.

Is inferior to the performance of Portfolio B.

Cannot be determined unless the risk-free rate of interest is known.

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