Assume That as a Portfolio Manager the Beta of Your

question 96

Multiple Choice

Assume that as a portfolio manager the beta of your portfolio is 0.85 and that your performance is exactly on target with the SML data under condition 1. If the true SML data is given by condition 2, how much does your performance differ from the true SML?

• A) 1.33% higher
• B) 2.35% lower
• C) 8% lower
• D) 1.33% lower
• E) 2.35% higher

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Definitions:

Total Return

The overall financial gain or loss on an investment, considering both capital gains and income such as interest or dividends.

Dividend

A portion of a company's earnings that is paid to shareholders, usually on a regular basis.

Nominal Rate

The officially declared or promoted rate of interest for a loan or investment, excluding the effects of compounding or any associated fees.

Loan

A borrowed sum of money that is expected to be paid back with interest.