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Two investment professionals are comparing their return performance. The first professional managed portfolios with an average return of 10% and the second professional managed portfolios
Two investment professionals are comparing their return performance. The first professional managed portfolios with an average return of 10% and the second professional managed portfolios with a 12% rate of return. The beta of the first portfolio was 0.8 while the beta of the second was 1.1. The risk-free rate of return was 2% and the expected market return is 8%. A. [5 points] Which manager was a better selector of individual stocks, and why?
B. [2 points] Plot both of the portfolios on the security market line.
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