CISI Investment Advice Diploma Exam

What is 'alpha' in the context of investment performance?

The risk premium earned by holding equities over bonds The excess return of a portfolio above its benchmark, adjusted for risk, indicating the value added (or destroyed) by active management The sensitivity of a portfolio to market movements The annual return on the risk-free rate

Correct Answer:

The excess return of a portfolio above its benchmark, adjusted for risk, indicating the value added (or destroyed) by active management

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