Assume That as a Portfolio Manager the Beta of Your $\quad \mathrm{RFR}=0.0475$

question 139

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? 1) $\quad \mathrm{RFR}=0.0475$ $\quad$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}(\mathrm{proxy}) =0.0975$
2) $\quad \mathrm{R}_{\mathrm{K}}=0.0325$ $\quad$ $\quad$ $\quad$ $\mathrm{P}_{\mathrm{m}}($ true $) =0.0845$

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

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Definitions:

Stock Dividends

These are dividends paid by a company to its shareholders in the form of additional shares of stock, rather than in cash.

Contributed Capital

Funds raised by a company through the issuance of shares to investors, representing the stockholders' equity apart from retained earnings.

Retained Earnings

The portion of net income left over for a business after it has paid out dividends to its shareholders, often used for reinvestment in the business or to pay down debt.

Small Stock Dividend

A dividend payment made in the form of additional shares, typically less than 25% of the existing shares.