Two stock investment advisers are comparing performance. The first averaged a 19% rate of return and the second a 16% rate of return. However, the beta of the first investor was 1.5, whereas that of the second investor was 1. (a) Can you tell which investor was a better selector of individual stocks (aside from the issue of general movements in the market)? Explain your answer carefully. (b) If the T-bill rate was 3% and the market return during the period was 15%, which investor would be considered the superior stock selector?

Two stock investment advisers are comparing performance. The first averaged a 19% rate of return and the second a 16% rate of return. However, the beta of the first investor was 1.5, whereas that of the second investor was 1. (a) Can you tell which investor was a better selector of individual stocks (aside from the issue of general movements in the market)? Explain your answer carefully. (b) If the T-bill rate was 3% and the market return during the period was 15%, which investor would be considered the superior stock selector?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

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