Suppose You Have 5-Year Annual Data on the Excess Returns

question 8

Multiple Choice

Suppose you have 5-year annual data on the excess returns on a fund manager’s portfolio (“fund ABC”) and the excess returns on a market index (where is the return on fund ABC, is the risk-free rate and is the return on the market index) :

-The estimated alpha ( ) and beta ( ) of a rival fund, Fund DEF, are 2.3 and 3.1, respectively. If the expected market risk premium is 12%, what would we expect the excess return of Fund DEF to be?

• A) 39.5%
• B) 30.7%
• C) 5.4%
• D) 64.8%

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Definitions:

Absolute Refractory Period

The period immediately following an action potential during which a neuron is incapable of firing another action potential, no matter how strong the stimulus.

Neural Impulses

Neural impulses, also known as action potentials, are the electrical signals that travel along neurons, transmitting messages throughout the nervous system.

Neuron

A specialized cell in the nervous system that transmits information through electrical and chemical signals.

Synaptic Cleft

The small gap between neurons at a synapse, across which neurotransmitters move to transmit nerve impulses.