Assume That as a Portfolio Manager the Beta of Your

question 78

Multiple Choice

Assume that as a portfolio manager the beta of your portfolio is 1.3 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?
$\begin{array}{c}\begin{array}{c}(1) \\(2) \end{array}\begin{array}{l}\mathrm{RFR}=.08 \\\mathrm{R}_{\mathrm{K}}=.07\end{array}\begin{array}{l}\mathrm{R}_{\mathrm{m}}(\text { proxy }) =0.11 \\\mathrm{R}_{\mathrm{m}}(\text { true }) =0.14\end{array}\end{array}$

• A) 4.2% lower
• B) 3.6% lower
• C) 3.8% lower
• D) 4.2% higher
• E) 3.6% higher

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Definitions:

Business Location

The physical place where a company is situated or operates from, including offices, retail stores, or manufacturing facilities.

Tract of Land

A large, defined area of land, which can be used for farming, development, or conservation purposes.

Profitability

The ability of a business or activity to generate income or profit exceeding its expenses and costs.

Partnership

A lawful business structure involving two or more people who divide both management responsibilities and earnings.