Allison's Portfolio Has a Beta of 1

question 82

Multiple Choice

Allison's portfolio has a beta of 1.37 and earns a return of 14%. Brianna's portfolio has a beta of 0.8 and earns a return of 11%. The risk-free rate is 3% and the expected rate of return on the market is 12%. According to the Jensen's measure,

• A) Allison has the better portfolio.
• B) Brianna has the better portfolio.
• C) the portfolios are equally desirable.
• D) the answer depends on Allison and Brianna's risk tolerance.

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Definitions:

Uncollectible

Accounts receivable that are deemed to be uncollectable and thus are written off as an expense.

Receivables Accounting

The process of recording and managing the money owed to a business by its customers for goods or services offered.

IFRS

International Financial Reporting Standards, a set of accounting guidelines that govern how financial statements are prepared and presented globally.

GAAP

Generally Accepted Accounting Principles; the standard framework of guidelines for financial accounting used in the United States.