Consider the Theory of Active Portfolio Management

question 49

Multiple Choice

Consider the theory of active portfolio management. Shares A and B have the same beta and non-systematic risk. Share A has higher positive alpha than share B. You should want ________ in your active portfolio.

• A)equal proportions of shares A and B
• B)more of Share A than Share B
• C)more of Share B than Share A
• D)more information is needed to answer this question

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Definitions:

Total Dollar Return

The overall financial gain or loss on an investment, including capital gains, interest, dividends, and distributions, calculated in absolute dollar terms.

Shares

Instruments of corporate or financial asset ownership, shares entitle owners to a proportional division of profits, paid as dividends, upon declaration.

Dividend

A portion of a company's earnings distributed to shareholders, often in the form of cash or additional shares.

Variance

A statistical measure that represents the average squared deviation from the mean, used to indicate the spread of a set of data points.