Assume that as a portfolio manager the beta of your portfolio is 0.85 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?
$$\begin{array} { l l l }
\text { (1) } & R F R = 0.0475 & R _ { m } ( 0 r a x y ) = 0 .0975 \
\text { (2) } & R _ { R } = 0.0325 & R _ { m } ( t u e ) = 0 .0845
\end{array}$$
A) 1.33% higher
B) 2.35% lower
C) 8% lower
D) 1.33% lower
E) 2.35% higher

Question

Assume that as a portfolio manager the beta of your portfolio is 0.85 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?
$$\begin{array} { l l l } 
\text { (1) } & R F R = 0.0475 & R _ { m } ( 0 r a x y ) = 0 .0975 \
\text { (2) } & R _ { R } = 0.0325 & R _ { m } ( t u e ) = 0 .0845
\end{array}$$
A) 1.33% higher
B) 2.35% lower
C) 8% lower
D) 1.33% lower
E) 2.35% higher

Quizplus · Accepted Answer

(proxy)k = 0.0475 + 0.85 (0.0975 - 0.0475)= 0.09
According to the True SML it should be:
(True)K = 0.0325 + 0.85 (0.0845 - 0.0325)= 0.0767
You have been overperforming by 1.33%.

Assume That as a Portfolio Manager the Beta of Your