Alex Smith and Jane Green are portfolio managers at your firm. Each manages a well-diversified portfolio. Your boss has asked for your opinion regarding their performance in the past year. Alex’s portfolio has a beta of 0.8 and had a return of 9.5%; Jane’s portfolio has a beta of 1.6 and had a return of 11.5%. Which manager had better performance? Why? (Assumer the risk-free rate is 4% and the market risk premium is 5%).

Alex Smith and Jane Green are portfolio managers at your firm. Each manages a well-diversified portfolio. Your boss has asked for your opinion regarding their performance in the past year. Alex’s portfolio has a beta of 0.8 and had a return of 9.5%; Jane’s portfolio has a beta of 1.6 and had a return of 11.5%. Which manager had better performance? Why? (Assumer the risk-free rate is 4% and the market risk premium is 5%).

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 16MC

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