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
Susie buys a share of Alphabet stock through her broker, Mr. Diaz, who works for Acme Investing and purchases the stock at the N
Andrew [12]

Answer:

Alphabet stock; Acme Investing; New York Stock Exchange.

Explanation:

Susie buys a share of Alphabet stock through her broker, Mr. Diaz, who works for Acme Investing and purchases the stock at the New York Stock Exchange. In this transaction, Alphabet stock is a financial instrument, Acme Investing is a financial institution, and New York Stock Exchange represents a financial market.

Financial instruments can be defined as assets which are having monetary value or used to record a monetary transaction. Financial instruments are generally classified on the basis of their risks, maturity, issuers etc. Some examples of financial instruments are stocks, treasury bills, commercial paper, money market mutual fund, certificate of deposits, corporate bonds etc. The market where these financial instruments (securities and derivatives) are being traded at a low transaction rate is referred to as the financial market.

Furthermore, financial institutions can be defined as a business firm or company that is involved in the business of trading financial instruments.

6 0
3 years ago
Syngman Rhee was not successful doing which of the following? Rebuilding China after the wars Increasing production of China Dri
givi [52]
It would be <span>Driving the Communist out of Indo China</span>
4 0
3 years ago
Read 2 more answers
Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of b
Kazeer [188]

Answer:

Adjusted cash balance : $25850

Explanation:

The goal of a reconciliation statement is to ascertain the differences between the banks records and the depositor’s records and make accounting changes as deemed appropriate. There is a general flow that is used to make the correcting entries:

1. The process flow starts with the bank’s ending cash balance

2. Add any deposits made by the company to the bank that are in transit

3. Deduct any cheques that are uncleared by the bank

4. Add or deduct any other differences available as necessary

5. In the company bank records, once again start with the ending balance

6. Add interests earned

7. Deduct any bank service fees, penalties and NSF (Non-Sufficient Funds) cheques.

8. Add or deduct any other differences available as necessary

At the end of this process, it is likely that both accounts would be equal and tally.

Please refer attached table for details on the calculation.

6 0
3 years ago
Carlton files a petition in bankruptcy. One of the goals of bankruptcy law with respect to a debtor is to:____.
german

Answer:

<em>Carlton files a petition in bankruptcy. One of the goals of bankruptcy law with respect to a debtor is </em><em>to </em><em>provide a fresh start, free from creditors' claims </em>

8 0
2 years ago
A good way to show your boss that you are dependable is to _____. a. arrive early b. arrive with snacks c. arrive late d. arrive
myrzilka [38]
A. Arrive early.

Explanation:

Dependable: Trustworthy and reliable.

B. Arriving with snacks doesn’t get you anywhere.

C. Arriving late isn’t even up for debate.

D. A day off is a day off for a reason, go home pal.
3 0
2 years ago
Read 2 more answers
Other questions:
  • &amp;&amp;&amp;
    15·2 answers
  • The St. Louis Symphony is an example of what type of organizational customer? A. Government B. Wholesaler C. Intermediary D. Res
    8·1 answer
  • Which practice should you follow while interfacing with customers?
    12·2 answers
  • Assume that the inflation rate becomes much higher in the U.K. relative to the U.S. This will place ____ pressure on the value o
    6·1 answer
  • Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the Fe
    5·1 answer
  • Account classifications include assets, liabilities, stockholders’ equity, dividends, revenues, and expenses. Required: For each
    8·1 answer
  • Sales $2,150,000 Manufacturing costs: Direct materials $960,000 Direct labor 420,000 Variable manufacturing cost 156,000 Fixed m
    9·1 answer
  • Technology helps business professionals, keep more organized, communicate better, and effectively keeps businesses secure. Techn
    10·1 answer
  • Jake Olsen has decided to put $1,000 in the bank. List several questions Jake might want to ask before ch whether to put the mon
    9·1 answer
  • In a period of steep increases in interest rates, which issuer is most likely to be negatively affected
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!