Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.