One Year Ago, Matt Bought 100 Shares of ACE Corp

question 77

Essay

One year ago, Matt bought 100 shares of ACE Corp. stock for $5,619 including commission. He is about to sell the ACE stock for $6,528 net of commissions. When he made the purchase the S&P 500 index was at 907; now it is 1070. The beta of ACE stock is 0.98, and the market's risk-free rate is 4.0%. No dividends were paid. Based on Jensen's measure, did Matt make a good purchase?

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Definitions:

Negligent Employee

An employee who fails to exercise the degree of care considered reasonable under the circumstances, resulting in harm or loss.

Respondeat Superior

A legal doctrine holding an employer or principal legally responsible for the wrongful actions of an employee or agent, if such actions occur within the scope of employment or representation.

Implied Authority

The power of an agent to perform acts which are reasonably necessary to accomplish the purpose of an organization.

Express Authority

The power explicitly given to an agent or representative through a contract or agreement to perform certain actions.