Question

Two investment advisers are comparing performance. One averaged
a 16.27% rate of return and the other a 20.51% rate of return.
However, the *β* of the first investor was 1.5, whereas that
of the second investor was 1.

Required: Suppose that the T-bill rate was 3% and the market return during the period was 15%. Aside from the issue of general movements in the market, outline the difference between the superior and inferior portfolios.

**Answer% Do not round intermediate calculations. Input
your answer as a percent rounded to 2 decimal places (for example:
28.31%).**

Two investment advisers are comparing performance. One averaged
a 16.27% rate of return and the other a 20.51% rate of return.
However, the *β* of the first investor was 1.5, whereas that
of the second investor was 1.

Required: Suppose that the T-bill rate was 3% and the market return during the period was 15%. Aside from the issue of general movements in the market, outline the difference between the superior and inferior portfolios.

**Answer% Do not round intermediate calculations. Input
your answer as a percent rounded to 2 decimal places (for example:
28.31%).**

Two investment advisers are comparing performance. One averaged
a 16.27% rate of return and the other a 20.51% rate of return.
However, the *β* of the first investor was 1.5, whereas that
of the second investor was 1.

Required: Suppose that the T-bill rate was 3% and the market return during the period was 15%. Aside from the issue of general movements in the market, outline the difference between the superior and inferior portfolios.

**Answer% Do not round intermediate calculations. Input
your answer as a percent rounded to 2 decimal places (for example:
28.31%).**

Answer #1

Required return for Portfolio 1 = 3% + (15% -3%)*1.5 = 21%

Required return for Portfolio 2 = 3% + (15% -3%)*1 = 15%

Alpha of portfolio 1= Actual return - Required return = 16.27% - 21% = -4.73%

Alpha of portfolio 2= Actual return - Required return = 20.51 - 15% = 5.51%

A superior portfolio is one which has generated excess returns over the required return and has lower beta. It has also generated higher returns and standard deviation is only slightly higher. Considering the characteristics, Portfolio 2 is a superior portfolio.

Two investment advisers are comparing performance. One averaged
a 16.27% rate of return and the other a 20.51% rate of return.
However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.
Answer% Do not round intermediate calculations....

Two investment advisers are comparing performance. One averaged
a 16.27% rate of return and the other a 20.51% rate of return.
However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.
_____% Do not round intermediate calculations....

two investment advisers are comparing performance. One averaged
a 16.27% rate of return and the other a 20.51% rate of return.
However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.

Two investment advisers are comparing performance. One averaged
a 15.79% rate of return and the other a 19.34% rate of return.
However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.
Answer% Do not round intermediate calculations....

Two investment advisers are comparing performance. One
averaged a 15.14% rate of return and the other a 18.89% rate of
return. However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.
Answer% Do not round intermediate calculations....

Two investment advisers are comparing performance. One averaged
a 16.45% rate of return and the other a 20.98% rate of return.
However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.
Answer% Do not round intermediate calculations....

Two investment advisers are comparing performance. One averaged
a 16.45% rate of return and the other a 19.78% rate of return.
However, the β of the first investor was 1.5, whereas that of the
second investor was 1. Required: Suppose that the T-bill rate was
3% and the market return during the period was 15%. Aside from the
issue of general movements in the market, outline the difference
between the superior and inferior portfolios. Answer % Do not round
intermediate...

Two investment advisers are comparing performance. One
averaged a 16.34% rate of return and the other a 20.69% rate of
return. However, the β of the first investor was 1.5,
whereas that of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the
market return during the period was 15%. Aside from the issue of
general movements in the market, outline the difference between the
superior and inferior portfolios.
Answer% Do not round intermediate calculations....

Two investment advisers are comparing performance. One averaged
a 15.46% rate of return and the other a 20.53% rate of return.
However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.
Answer% Do not round intermediate calculations....

Two investment advisers are comparing performance. One averaged
a 16.45% rate of return and the other a 19.78% rate of return.
However, the β of the first investor was 1.5, whereas that
of the second investor was 1.
Required: Suppose that the T-bill rate was 3% and the market
return during the period was 15%. Aside from the issue of general
movements in the market, outline the difference between the
superior and inferior portfolios.
Answer% Do not round intermediate calculations....

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