4. C is correct. Adding cash or leverage to a portfolio does not change the Sharpe ratio but
changes the information ratio. Both ratios can be measured ex-ante and ex-post and both use
standard deviation as a measure of volatility. Sharpe ratio uses standard deviation of portfolio
returns, i.e. total risk, and information ratio employs standard deviation of active return, i.e.
active risk. Section 3.2. LO.b.
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