Portfolio X had an average quarterly return of 5.2% with a standard deviation of 6.5%. The market had an average quarterly return of 6.1% with a standard deviation of 10.5%. The average riskfree rate was 3%. Using the reward-to-variability ratio,
A) the portfolio had an inferior performance.
B) Portfolio X lies above the ex post CML.
C) Portfolio X has a slope lower than that of the CML.
D) there is insufficient data to compare them.

Question

Portfolio X had an average quarterly return of 5.2% with a standard deviation of 6.5%. The market had an average quarterly return of 6.1% with a standard deviation of 10.5%.	The average riskfree rate was 3%. Using the reward-to-variability ratio,
A) the portfolio had an inferior performance.
B) Portfolio X lies above the ex post CML.
C) Portfolio X has a slope lower than that of the CML.
D) there is insufficient data to compare them.

Quizplus · Accepted Answer

Since Portfolio X is located above the ex post CML, it means its reward-to-variability ratio is higher than that predicted by the CML. Therefore, Portfolio X has performed better than expected, indicating a superior performance.

Portfolio X Had an Average Quarterly Return of 5