-Which of the Funds' Returns Are Best Explained by the alpha

question 22

Multiple Choice

$\begin{array}{llcl}\underline{\text { SD }} &\underline{ \text { Beta} }&\underline{\text { alpha }} &\underline{\mathrm{R}^{2}}\\\text { Fund 1 1.97 } & 1.0 & 1.3 & 0.95 \\\text { Fund 22.94 } & 0.8 & 0.6^{*} & 0.80 \\\text { Fund 33.82 } & 1.2 & -3.5 & 0.90 \\\text { Fund 44.70 } & 1.4 & 4.2 & 0.65\end{array}$

-Which of the funds' returns are best explained by the market's returns?

• A)Fund 1
• B)Fund 2
• C)Fund 3
• D)Fund 4

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Definitions:

Accrual-Basis Accounting

Accounting basis in which companies record transactions that change a company's financial statements in the periods in which the events occur.

Cash-Basis Accounting

Accounting basis in which companies record revenue when they receive cash and an expense when they pay out cash.

Revenue Recognition Principle

An accounting principle stating that revenue should be recorded when it is earned and realizable, regardless of when the cash is received.

Expense Recognition Principle

An accounting principle that states expenses should be recognized and recorded when they are incurred, regardless of the timing of cash payments.