Two investment advisers are comparing performance. One averaged a 19% return and the other a 16% return. However, the beta of the first adviser was 1.5, while that of the second was 1.

Required:

a. Can you tell which adviser was a better selector of individual stocks (aside from the issue of general movements in the market)?

multiple choice 2

• First investment advisor

• Second investment advisor

• Cannot be determined

b. If the T-bill rate were 6% and the market return during the period were 14%, which adviser would appear to be the superior stock selector?

multiple choice 4

• First investment advisor

• Second investment advisor

• Cannot be determined

c. What if the T-bill rate were 3% and the market return 15%?

multiple choice 6

• First investment advisor

• Second investment advisor

• Cannot be determined