You Are Considering Investing Your Money with Value Max,a Professional

question 80

Essay

You are considering investing your money with Value Max,a professional money management firm.Value Max's portfolio maintains constant percentages in computer stocks (40%),bio-technology stocks (20%),and health service stocks (40%).Value Max has sent you the following information on past performance and investment details: Value Max returns = 40% per annum over the last 5 years; returns on NYSE index = 20% per annum over last 5 years; average annualized 6-month T-bill rate = 7% over last 5 years.Your research indicates that the average betas for the three sectors Value Max invests in are 1.2 for computer stocks,1.5 for bio-technology stocks,and 0.8 for health service stocks.
a. What is the appropriate beta to use to evaluate Value Max's portfolio?
b. Evaluate Value Max's performance over the last five years.

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Definitions:

Independent Variable

A variable that is manipulated or changed in an experiment to determine its effect on the dependent variable.

Room Temperature

A general description of a comfortable indoor environment, typically considered to be around 20°C (68°F) to 22°C (72°F).

Noise Level

The measurement of the ambient level of sound, often referring to the background sound present in a given environment.

Internal Validity

The degree to which a study’s results are attributable to the independent variable, rather than other factors, indicating the study accurately reflects the relationship being tested.