Assuming some positive returns on Treasury bills,what can you assume about an investor whose diversified portfolio of stocks yielded 25% when the market portfolio yielded 15%?
A) Treasury bills are offering a 10% yield.
B) The portfolio beta is greater than 1.0.
C) The portfolio beta equals 1.67.
D) The investor's portfolio contains many defensive stocks.

Question

Quizplus · Accepted Answer

If the market portfolio yielded 15% and the investor's diversified portfolio of stocks yielded 25%, the excess return on the portfolio is 10%. Assuming that Treasury bills have positive returns, the excess return over the risk-free rate can be attributed to the portfolio's beta. If the portfolio's excess return is 10% and the market's excess return is 15%, then the portfolio's beta must be greater than 1.0, indicating that the portfolio is more volatile than the overall market. Therefore, the correct choice is B.

Assuming Some Positive Returns on Treasury Bills,what Can You Assume