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The following table summarizes the monthly return and risk of two actively managed portfolios A and B: Summary of Portfolio Performance Portfolio A Average return
The following table summarizes the monthly return and risk of two actively managed portfolios A and B: Summary of Portfolio Performance Portfolio A Average return Beta Standard deviation Residual standard deviation Alpha 26% 0.8 28% 16% 5% Portfolio B 38% 1.3 45% 25% 7% The T-bill (risk-free) rate is 2%. A. (2 points) Suppose that you want to expand your existing well-diversified portfolio. Which portfolio, A or B, would you prefer to choose? Briefly explain. B. (2 points) Determine whether each portfolio is located above, exactly on, or below the security market line (SML). Briefly explain. Note: You must show your calculation steps briefly and clearly. The following table summarizes the monthly return and risk of two actively managed portfolios A and B: Summary of Portfolio Performance Portfolio A Average return Beta Standard deviation Residual standard deviation Alpha 26% 0.8 28% 16% 5% Portfolio B 38% 1.3 45% 25% 7% The T-bill (risk-free) rate is 2%. A. (2 points) Suppose that you want to expand your existing well-diversified portfolio. Which portfolio, A or B, would you prefer to choose? Briefly explain. B. (2 points) Determine whether each portfolio is located above, exactly on, or below the security market line (SML). Briefly explain. Note: You must show your calculation steps briefly and clearly
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