Assume That as a Portfolio Manager the Beta of Your $\mathrm{RFR}=.07$

question 104

Multiple Choice

Assume that as a portfolio manager the beta of your portfolio is 1.1 and that your performance is exactly on target with the SML data under condition 1. If the true SML data is given by condition 2, how much does your performance differ from the true SML? (1) $\mathrm{RFR}=.07$$\quad\quad\quad R_{m}(\text { proxy }) =.15$
(2) $\mathrm{RK}_{\mathrm{K}}=.06$$\quad\quad\quad R_{m}($ true $) =.12$

• A)3.2% lower
• B)6.4% lower
• C)4.9% lower
• D)3.2% higher
• E)6.4% higher

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Definitions:

Net Present Value (NPV)

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to assess the profitability of an investment or project.

Cash Inflows

Money or other forms of financial assets that enter a company, typically from sales, investments, financing, and other business activities.

Depreciation Value

The reduction in value of an asset over time due to wear and tear or obsolescence.

Internal Rate of Return (IRR)

The yield rate at which all of a project's cash flows' net present value becomes null.