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:

NSF Check

A check that cannot be processed due to insufficient funds in the account of the issuer.

Internal Control

Processes and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Cash Shortages

Situations where the actual cash on hand is less than the expected amount, usually as a result of errors or theft.

Cash Deposit Slip

A document prepared by a depositor when making a deposit into a bank account, enumerating the cash and/or checks being deposited.