1. Your financial adviser is suggesting two possible stock investments for you: B Company and the G Company. B Company has expected returns of 14% with a beta of 1.0 while G Company will return 14% but with a beta of 1.2. After analysis which one should you purchase and why?
2. In a discussion with your financial advisor you are asking her how well your portfolio did relative to the overall market. You were certainly pleased to have earned 12% last year which the market returned 10%. Your portfolio beta = 1.3, and the risk free rate as estimated on US Treasury bonds was 2%. If she were using Treynor’s measure how well did you do against the market? Better/worse or about the same?