Relative Return Portfolio Performance Measures

question 101

Multiple Choice

Relative return portfolio performance measures

• A) adjust portfolio risk to match benchmark risk.
• B) compare portfolio returns to expected returns under CAPM.
• C) evaluate portfolio performance on the basis of return per unit of risk.
• D) indicate historic average differential return per unit of historic variability of differential return.
• E) the average market beta per unit of risk.

---

Definitions:

Optimal Capital Structure

The best mix of debt, preferred stock, and common equity that maximizes a company’s stock price.

Financial Leverage

The use of borrowed funds to finance the acquisition of assets, with the expectation that the income or capital gain from the assets will exceed the cost of borrowing.

WACC

Weighted Average Cost of Capital; a calculation that reflects the cost of a company's financing (debt and equity) weighted by the proportion of each financing source in the overall capital structure.

Tax Shields

Deductions and credits available to taxpayers that lower the total tax liability by reducing taxable income.