Suppose Two Portfolios Have the Same Average Return and the Same

question 47

Multiple Choice

Suppose two portfolios have the same average return and the same standard deviation of returns, but Aggie Fund has a higher beta than Raider Fund. According to the Sharpe measure, the performance of Aggie Fund

• A) is better than the performance of Raider Fund.
• B) is the same as the performance of Raider Fund.
• C) is poorer than the performance of Raider Fund.
• D) cannot be measured as there are no data on the alpha of the portfolio.

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Definitions:

Account Entry

An accounting record that logs a financial transaction in the books of accounts, impacting the balance sheet and/or income statement.

Debt Ratio

A financial ratio that measures the extent of a company’s leverage, computed by dividing total liabilities by total assets.

Financial Leverage

The use of borrowed funds to increase the potential return of an investment, which also increases the risk.

Posting Reference Column

A column in journals and ledgers where account numbers related to specific transactions are recorded for tracking purposes.