Assume That as a Portfolio Manager the Beta of Your

question 22

Multiple Choice

Assume that as a portfolio manager the beta of your portfolio is 1.4 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?
$\begin{array}{c}\begin{array}{lll}(1) \\(2) \end{array}\begin{array}{lll}\mathrm{RFR}=.06 \\\mathrm{R}_{\mathrm{K}}=.05\end{array}\begin{array}{lll}\mathrm{R}_{\mathrm{m}}(\mathrm{proxy}) =.12 \\\left.\mathrm{R}_{\mathrm{m}} \text { (true }\right) =.11\end{array}\end{array}$

• A) 2.0% lower
• B) 0.5% lower
• C) 0.5 % lower
• D) 1.0% higher
• E) 2.0% higher

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Definitions:

Concentration Ratios

Measures that indicate the degree of market concentration by showing the market share of the largest firms in an industry.

Inverted-U Theory

A hypothesis that suggests there is a relationship between the level of some activity and the effect it has on performance, which looks like an inverted U, indicating optimal performance at an intermediate level of the activity.

Technologically Progressive

Pertaining to the consistent application and incorporation of new technologies to improve processes, products, or services.

Perfectly Elastic

Describes a situation where the quantity demanded or supplied responds infinitely to changes in price.