Consider the Theory of Active Portfolio Management

question 3

Multiple Choice

Consider the theory of active portfolio management.Stocks A and B have the same beta and non-systematic risk.Stock A has higher positive alpha 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:

Anticipated Tax Credits

Tax credits that are expected to be received in the future, which can reduce the amount of taxes owed.

Income Tax Expense

The total amount of income tax that a company reports as an expense in its financial statements for a specific period.

Pretax Income

The total earnings of a company before taxes have been deducted, also known as earnings before tax (EBT).

LIFO Method

"Last In, First Out" method; an inventory strategy where the most recently produced items are sold first, leaving older inventory in stock.