Consider the Theory of Active Portfolio Management

question 17

Multiple Choice

Consider the theory of active portfolio management.Stocks A and B have the same positive alpha and the same nonsystematic risk.Stock A has a higher beta than stock B. You should want __________ in your active portfolio.

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

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Definitions:

Binomial Experiment

An experiment or trial that can result in only two possible outcomes, such as success or failure, and follows the binomial distribution.

Probability of Success

The likelihood measured as a fraction or percentage, of achieving a desired outcome or positive result in an experiment or trial.

Variance

A measure of how much values in a data set differ from the mean, indicating the distribution's spread.

Normal Distribution

The distribution is symmetric relative to the mean, with a notable prevalence of data points in close proximity to the mean compared to those farther away.