Assume That as a Portfolio Manager the Beta of Your $\mathrm{RFR}=.06$

question 113

Multiple Choice

Assume that as a portfolio manager the beta of your portfolio is 1.4 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}=.06$$\quad\quad\quad R_{m}(\text { proxy }) =.12$
(2) $\mathrm{RK}_{\mathrm{K}}=.05$$\quad\quad\quad R_{m}($ true $) =.11$

• A)2.0% lower
• B)0.5% lower
• C)0.5% higher
• D)1.0% higher
• E)2.0% higher

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Definitions:

Sampling Distribution

A statistical distribution of all possible samples of a given size taken from a population.

Standard Deviation

A calculation that determines the amount of fluctuation or spread in a set of numbers.

Sampling Distribution

The probability distribution of a statistic (e.g., the mean) obtained from a large number of samples drawn from a specific population.

Standard Deviation

A measure of the dispersion of a set of data from its mean, indicating how spread out the data points are.