202 nd ca Two investment advisers are comparing performance. Adviser A averaged a 20% return with a portfolio beta of 1.5, and adviser B averaged a 15% return with a portfolio beta of 1.2. If the T-bill rate was 5% and the market return during the period was 13%, which adviser was the better stock picker? Advisor A was better because he generated a larger alpha. Actual Advisor A was better because he generated a higher return. Advisor B was better because she generated a larger alpha. A 20% Advisor B was better because she achieved a good return with a lower beta. 5+1.2 (13-5)= 14.6=0 B 15% 15-14.6=14% alpha rf + B (EL)-r(f)) 5 + 1.5 (13-5) = 177. =A Arbitrage is based on the idea that 20-17=-33) = alpha assets with identical risks must have the same expected rate of return securities with similar risk should sell at different prices the expected returns from equally risky assets are different markets are perfectly efficient The most significant conceptual difference between the arbitrage pricing theory (APT) and the capital asset pricing model (CAPM) is that the CAPM places less emphasis on market risk recognizes multiple unsystematic risk factors recognizes only one systematic risk factor recognizes multiple systematic risk factors Among the important characteristics of market efficiency is (are) that: I. There are no arbitrage opportunities. II. Security prices react quickly to new information. III. Active trading strategies will not consistently outperform passive strategies. I only II only I and III only (I, II, and III