Question

When you bought the stock of XYZC0, you determined that the risk-free rate was 2%, the required market return was 8% and the stock's beta was 1.25. You also predicted that the stock would pay a $3 dividend and sell for $100 in 1 year. What is the most you would pay for the stock today to earn a fair rate of return? Beesly promises investors a 10% return regardless of the performance of any index. Her entire portfolio consists: - Shares of three paper companies - A short position in a distribution company - Cryptocurrency - Three paintings. Choose the most relevant performance measure for her performance. Jensen Alpha Sharpe Ratio Treynor Ratio Golden Ratio

Answer 1

The most relevant performance measure for Beesly's portfolio would be the Sharpe Ratio.

The Sharpe Ratio is a measure of risk-adjusted return, which considers both the return earned and the volatility (risk) associated with that return. It calculates the excess return per unit of risk (standard deviation).

Since Beesly promises investors a fixed 10% return regardless of the performance of any index, the relevant measure would be to assess the risk-adjusted return of her portfolio. The Sharpe Ratio will provide insights into how well she is generating returns relative to the risk taken.