Given Two Portfolios: A, Which Has an Expected Return of 14

question 47

Multiple Choice

Given two portfolios: A, which has an expected return of 14% and a beta of 1.2; and B, which has an expected return of 15% and a beta of 1.6. Which of the two portfolios has high level of relative risk?

• A) Portfolio A, because of its expected return
• B) Portfolio B, because of its expected return
• C) Portfolio A, because of its Beta
• D) Portfolio B, because of its Beta

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Definitions:

Present Value Factors

Present value factors are numerical values used to calculate the present value of a future amount of money or stream of cash flows given a specific interest rate.

Depreciation

The deliberate allocation of a physical asset's expenditure throughout its usable life.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to assess the profitability of an investment.

Required Return

The minimum amount of profit an investor expects to receive on an investment, accounting for various levels of risk.