1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
vovangra [49]
2 years ago
13

Two investment advisers are comparing performance. Adviser A averaged a 20% return with a portfolio beta of 1.5, and adviser B a

veraged 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 adviser was the better stock picker?
A. Advisor A was better because he generated a larger alpha.
B. Advisor B was better because she generated a larger alpha.
C. Advisor A was better because he generated a higher return.
D. Advisor B was better because she achieved a good return with a lower beta.
Business
1 answer:
Agata [3.3K]2 years ago
7 0

Answer:

Option A is the correct answer.

A. Advisor A was better because he generated a larger alpha.

Explanation:

To determine which adviser would be the better stock selector, we will calculate the required rate of return of each adviser and the return actually averaged. The adviser with the greater abnormal return, which is return in excess of required rate, will be the better stock selector.

Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.

The formula for required rate of return under CAPM is,

r = rRF + Beta * (rM - rRF)

Where,

  • rRF is the risk free rate
  • rM is the market return

r of Adviser A = 0.05 + 1.5 * (0.13 - 0.05)

r of Adviser A = 0.17 or 17%

Abnormal or excess return of Adviser A = 20% - 17% = 3%

r of Adviser B = 0.05 + 1.2 * (0.13 - 0.05)

r of Adviser B = 0.146 or 14.6%

Abnormal or excess return of Adviser B = 15% - 14.6% = 0.4%

Adviser A performed better as the excessive return or alpha of Adviser A was 3% while that of Adviser B was 0.4%

You might be interested in
Answer the following as True or False.
svp [43]

Answer:

1. False

2. True

3. True

Explanation:

In Accounting, declaring and paying a stock dividend only decreases Retained Earnings but not Stockholders' Equity on the balance sheet because it has no effect on the cash position of an organization.

5 0
2 years ago
What return do you expect earn if you buy the 3 years ,10% coupon bond today and sell it in exactly 1 year( if current price is
IrinaK [193]

Answer:

8.02%

Explanation:

Since corporate bonds pay coupons semiannually, it would be important to first all determine the semiannual yield to maturity of this bond using a financial calculator as shown below:

We need to set the calculator to its end mode before making the following inputs:

N=6(number of semiannual coupons in 3 years=3*2=6)

PMT=50(semiannual coupon=face value*coupon rate/2=1000*10%/2=50)

PV=-1051.45 (current price)

FV=1000(bond's face value)

CPT

I/Y=4.02%

After one year, there would 4 semiannual coupons left, we can compute the bond price as shown thus:

N=4

PMT=50

I/Y=4.02(without % sign)

FV=1000

CPT

PV=1,035.56

The expected rate of return over one year is computed thus:

N=2(number of semiannual coupons in 1 year holding period)

PMT=50(the amount of each semiannual coupon)

PV= -1051.45

FV=1,035.56(selling price after one year)

CPT=4.01%(on a semiannual basis)

annual rate of return=4.01%*2=8.02%

7 0
3 years ago
Examine the table comparing two individuals.
Jobisdone [24]

Answer:

1- selma

2- tobacco use

3- preexisting condition

Explanation:

I just took it on edge

4 0
3 years ago
1.While the wants and needs of consumers are unlimited, productive
Anton [14]

Answer: answser

Explanation:

I need points. I hope you understand

7 0
3 years ago
L.L. Bean, the founder of the company that bears his name, left a company legacy that consists of three fundamental core values:
Natalka [10]

Answer:somethings

Explanation:

7 0
3 years ago
Other questions:
  • Auerbach Inc. issued 4% bonds on October 1, 2021. The bonds have a maturity date of September 30, 2031 and a face value of $300
    6·1 answer
  • Executive Solutions is a strategy consulting firm. Other than the senior leadership (who manage the firm, but do not actively co
    14·1 answer
  • At the end of its first year, the trial balance of Ivanhoe Company shows Equipment $30,600 and zero balances in Accumulated Depr
    7·1 answer
  • How can social media endanger the safety of military service members and journalists?
    5·1 answer
  • True Rest spa offers a unique experience of relaxation for "stressed-out moms." Choose the most effective example of the spa’s v
    12·1 answer
  • When the market interest rate rises above the coupon rate for a particular quality of bond, the "current yield": will be below t
    13·1 answer
  • g Consider the income-expenditure model. Suppose that the marginal propensity to consume is equal to 0.8. A reduction in taxes o
    14·1 answer
  • Identify which cost of inflation—menu costs or shoe-leather costs—is illustrated in each of the scenarios.
    6·1 answer
  • Accounting profit is typically rev: 06_26_2018 Multiple Choice smaller than economic profit because the former does not take imp
    6·1 answer
  • with no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. but if th
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!