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The Market Is Expected to Generate a 11% Return and the Risk

question 83

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The market is expected to generate a 11% return and the risk free rate is 4%. A portfolio manager has 80% of her capital allocated to stock A with a beta of 0.9, which generated a total return of 12%. 20% of her capital is allocated to stock B with a beta of 1.3, which generated a total return of 13%. What concept is demonstrated to explain the alpha being generated by the manager?


Definitions:

Overhead Applied

The allocation of indirect costs to the different products or services produced, based on a predetermined rate.

Direct and Indirect Labor Costs

Expenses related to the wages of workers directly involved in production and those who support the production process.

Job-Order Costing

An accounting method that tracks costs individually for each job, suitable for bespoke or custom work.

Job-Order Costing

An accounting method that assigns costs to specific batches or job orders, tracking the expenses of each job separately.

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