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worty [1.4K]
3 years ago
12

Two investment advisors are comparing performance. Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B av

eraged a 15% return with a portfolio beta of 1.2. If the T-bill rate was 5% and the market return during the period was 13%, which advisor was the better stock picker?
Business
1 answer:
Phantasy [73]3 years ago
3 0

Answer:

Advisor A

Explanation:

t bill rate = 0.05

market rate = 0.13

the beta of the market is always 1

the rate of return= 0.05 + (0.13 - 0.05) x 1

= 0.13

which is 13%

<u>this</u><u> </u><u>is</u><u> </u><u>fo</u><u>r</u><u> </u><u>adviso</u><u>r</u><u> </u><u>A</u><u>.</u><u> </u>

with a return of 20% and 1.5 beta

0.05 + ( 0.20 - 0.05) x 1.5

= 27.5% <u>for</u><u> </u><u>adviso</u><u>r</u><u> </u><u>b</u>

when the return is 15% and beta is 1.2

0.05 + (0.15 - 0.05) x 1.2

= 17%

<u>Therefore advisor a is better</u>

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