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The multiple-choice question: A plan sponsor with a portfolio manager who invests in small-capitalisation U. S. stocks should have the plan sponsor's performance measured against which one of the following? Note: each of these are US stock indices. The Dow Jones Industrial Average an index of 30 of the largest listed companies in the US. The S&P 500-an index of 500 of the largest companies in the US. It is meant to be representative of the entire US stock market. The Wilshire 5000 -an index of all stock listed in the US (regardless of whether there are exactly 5000 or not). The Russell 2000 an index of the stocks ranked from the 3000th largest to the 1001 st largest companies in the US. B1. Could portfolio A show a higher Sharpe ratio than that of another portfolio B and at the same time a lower M2 measure? Explain. B2. You've been provided with the following data, covering one year, concerning the portfolios of two equity managers (manager A and manager B). Although the portfolios consist primarily of common stocks, cash reserves are included in the calculation of both portfolio betas and performance. By way of perspective, selected data for the financial markets are included in the following table. Beta 1.0 1.5 Manager A Manager B S&P 500 Lehman bond index 91-day Treasury bills Total return 24.0% 30.0 21.0 31.0 12.0 a. First calculate the alphas and Treynor ratios of the two managers and then compare the risk adjusted performance of these two managers relative to each other and to the S&P500. b. Explain why the conclusions drawn from this calculation may be misleading

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