The chairman provides you with the following data, covering one year, concerning the portfolios of two of

Question:

The chairman provides you with the following data, covering one year, concerning the portfolios of two of the fund's equity managers (manager A and manager B). Although the portfolios consist primarily of common stocks, cash reserves are included in the calculation of both betas and performance. By way of perspective, selected data for the financial markets are included in the following table.

Total Return Beta Manager A 24.0% 1.0 Manager B 30.0 1.5 21.0 S&P 500 31.0 Aggregate Bond Index 91-day Treasury bills 12

a. Calculate and compare the alpha of the two managers relative to each other and to the S&P 500.
b. Explain two reasons the conclusions drawn from this calculation may be misleading?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...