Allison's Portfolio Has an Expected Return of 14% and a Beta

question 77

Multiple Choice

Allison's portfolio has an expected return of 14% and a beta of 1.37.Brianna's portfolio has an expected rate of return of 11% and a beta of 1.The risk-free rate is 3% and the expected rate of return on the market is 12%.According to the Jensen's measure,

• A)Allison has the better portfolio.
• B)Brianna has the better portfolio.
• C)the portfolios are equally desirable.
• D)the answer depends on Allison and Brianna's risk tolerance.

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Definitions:

Equity Sales

The process of selling ownership interest in a company, typically in the form of stocks, to raise capital.

Equity Repurchases

The method through which a corporation repurchases its shares from the market, thus decreasing the total number of shares available.

Fixed Cost

Expenses that do not change in total regardless of the level of production or sales activity, such as rent, salaries, and insurance.

Raw Materials

Raw materials are the basic substances or components used in the manufacture or production of goods.