If a Professionally-Managed Portfolio Consistently Outperforms the Market Proxy on a Risk-Adjusted

question 1

Multiple Choice

If a professionally-managed portfolio consistently outperforms the market proxy on a risk-adjusted basis and the market is efficient, it should be concluded that

• A) the CAPM is invalid.
• B) the proxy is inadequate.
• C) either the CAPM is invalid or the proxy is inadequate.
• D) the CAPM is valid and the proxy is adequate.
• E) None of the options are correct.

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Definitions:

Raw Materials

These are the base ingredients or components that companies use in the production of goods.

Materials Price Variance

The difference between the actual cost of materials used in production and the standard cost of those materials.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity expected, multiplied by the standard cost per unit of material.

Cash Account

A financial account that tracks the money that is readily available for a company or individual, including physical currency and balances in bank accounts.