Suppose Two Portfolios Have the Same Average Return, the Same

question 54

Multiple Choice

Suppose two portfolios have the same average return, the same standard deviation of returns, but Aggie Fund has a higher beta than Raider Fund.According to the Treynor measure, the performance of Aggie Fund

• A)is better than the performance of Raider Fund.
• B)is the same as the performance of Raider Fund.
• C)is poorer than the performance of Raider Fund.
• D)cannot be measured as there are no data on the alpha of the portfolio.

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Definitions:

Profitability Index

A financial tool used to evaluate the attractiveness of an investment by dividing the present value of future cash flows by the initial investment cost.

Rate Of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment’s cost.

Required Return

The lowest profit anticipated by an investor from a specific asset or project investment.

Profitability Index

A financial metric that calculates the relative profitability of an investment by dividing the present value of future cash flows by the initial investment cost.