Two Investment Advisors Are Comparing Performance

question 75

Multiple Choice

Two investment advisors are comparing performance.Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2.If the T-bill rate was 5% and the market return during the period was 13%,which advisor was the better stock picker?

• A) Advisor A was better because he generated a larger alpha
• B) Advisor B was better because he generated a larger alpha
• C) Advisor A was better because he generated a higher return
• D) Advisor B was better because he achieved a good return with a lower beta

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Definitions:

Demand Function

A mathematical representation that describes the relationship between the quantity demanded of a good and various factors that influence this quantity, such as price.

Consumer's Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.

Mead

An alcoholic beverage created by fermenting honey with water, sometimes with various fruits, spices, grains, or hops.

Utility Function

An economic model that describes how consumers rank different bundles or combinations of goods according to the level of satisfaction or utility they provide.