Allison's Portfolio Has an Expected Return of 14% and a Beta

question 67

Multiple Choice

Allison's portfolio has an expected return of 14% and a beta of 1.37.Brianna's portfolio has an expected rate of return of 11% and a beta of 1.The risk-free rate is 3% and the expected rate of return on the market is 12%.According to the Jensen's measure,

• A) Allison has the better portfolio
• B) Brianna has the better portfolio
• C) The portfolio's are equally desirable
• D) The answer depends on Allsison and Brianna's risk tolerance

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Definitions:

Break-Even

The stage at which accumulated costs equal accumulated earnings, leaving no room for profit or loss.

Monthly Dollar Sales

The total value of all sales in monetary terms for a specific month.

Variable Expenses

Costs that change in proportion to the activity of a business, such as sales volume, production levels, or inventory.

Fixed Expenses

Costs that do not change with the level of production or sales activities over a short period.