Assume that as a portfolio manager the beta of your portfolio is 1.3 and that your performance is exactly on target with the SML data under condition 1. If the true SML data is given by condition 2, how much does your performance differ from the true SML? 1) $ \quad \mathrm{RFR}=.08 \quad \quad \quad \mathrm{P}_{\mathrm{m}}( $ proxy $ )=.11 $
2) $ \quad \mathrm{R}_{\mathrm{K}}=.07 \quad \quad \quad \quad \mathrm{R}_{\mathrm{m}}( $ true $ )=.14 $
A) 4.2% lower
B) 3.6% lower
C) 3.8% lower
D) 4.2% higher
E) 3.6% higher

Question

Assume that as a portfolio manager the beta of your portfolio is 1.3 and that your performance is exactly on target with the SML data under condition 1. If the true SML data is given by condition 2, how much does your performance differ from the true SML? 1) $ \quad \mathrm{RFR}=.08 \quad  \quad  \quad \mathrm{P}_{\mathrm{m}}( $ proxy $ )=.11 $
2) $ \quad \mathrm{R}_{\mathrm{K}}=.07 \quad  \quad  \quad  \quad \mathrm{R}_{\mathrm{m}}( $ true $ )=.14 $
A) 4.2% lower
B) 3.6% lower
C) 3.8% lower
D) 4.2% higher
E) 3.6% higher

Quizplus · Accepted Answer

The correct answer is A because the portfolio's expected return under the true SML is 14% - (1.3 * (14% - 7%)) = 11.9%, which is 4.2% lower than the expected return of 16.1% under the proxy SML.

Assume That as a Portfolio Manager the Beta of Your RFR=.08Pm( \quad \mathrm{RFR}=.08 \quad \quad \quad \mathrm{P}_{\mathrm{m}}( RFR=.08Pm​(

Assume That as a Portfolio Manager the Beta of Your $\quad \mathrm{RFR}=.08 \quad \quad \quad \mathrm{P}_{\mathrm{m}}($