2. (15 points) A portfolio manager reported the average annual return to his portfolio (portfolio A) is 20% in the past

[answerhappygod]

2 15 Points A Portfolio Manager Reported The Average Annual Return To His Portfolio Portfolio A Is 20 In The Past 1 (85.26 KiB) Viewed 33 times

2. (15 points) A portfolio manager reported the average annual return to his portfolio (portfolio A) is 20% in the past 5 years with a Beta of 0.9. Suppose the returns to Treasury Bills (risk-free rate) is 2% and the return to S&P 500 (proxy for market return) is 12%. a. Is it possible for the manager to achieve this return, according to CAPM? Why or why not? b. Continue from (a), what does manager A's claim suggest about the Alpha of portfolio A? Is the portfolio overpriced or underpriced? Draw the securities market line (SML) for the market return and the risk-free rate given. d. Suppose that the Beta for portfolio A is instead 1.8, and you would like to compare manager A's performance with manager B, who only generated a 10% return but has a Beta of 0.8. Can you say manager A is a better selector of individual stocks than manager B? Why or why not? C.