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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.

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

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

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

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11% and 14%, respectively. The beta of A is .8 while that of B is 1.5. The T-bill rate is currently 6%, while the expected rate of return of the S and P 500 index is 12%. The standard deviation of portfolio A is 10% annually, while that of B is 31%, and that of the index is 20%.

a. If currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.

b. If instead you could invest only in bills and one of these portfolios, which would you choose?

1. If the cross price elasticity of demand between two commodities is positive, then these commodities are

Select one:

a. are complements.

b. are inferior.

c. are superior.

d. are substitutes.

Answer...?

2. Along a given indifference curve, a consumer reduces the quantity of one good in favor of more units of the other. In this situation

Select one:

a. the marginal utility of the first rises and the marginal utility of the second good falls.

b. Total utility rises.

c. Both the marginal rate of substitution falls and the marginal utility of the first rises and the marginal utility of the second good falls are correct.

d. the marginal rate of substitution falls.

Answer...?

3. Along a given indifference curve, a consumer reduces the quantity of one good in favor of more units of the other. In this situation

Select one:

a. the marginal utility of the first rises and the marginal utility of the second good falls.

b. Total utility rises.

c. Both the marginal rate of substitution falls and the marginal utility of the first rises and the marginal utility of the second good falls are correct.

d. the marginal rate of substitution falls.

Answer...?

4. Moral hazard is a barrier to financing global growth because

Select one:

a. of the differences between financing using loans, portfolio investment and foreign direct investment.

b. there is the possibility that the funds are used for riskier behavior than the lender agreed to.

c. firms sometimes have trouble determining whether they need funds or not.

d. if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.

5. Moral hazard is a barrier to financing global growth because

Answer...?

6. Which of the following statements is FALSE?

Select one:

a. Price elasticity of supply can never equal 1.

b. Time is an important consideration in determining supply elasticity.

c. A horizontal supply curve is possible.

d. A perfectly inelastic supply curve is a vertical line.

Answer...?

7. Corporations are able to raise large amounts of financial capital because

Select one:

a. of limited liability and the treatment of a corporation as an individual entity.

b. of the tax breaks corporations are given relative to partnerships or proprietorships.

c. of the elimination of the problem of separation of ownership and control.

d. of their greater ability to monitor the performance of decision makers.

Answer...?

8. The largest quota subscriber of the International Monetary Fund (IMF) is

Select one:

a. China.

b. Japan.

c. Germany.

d. the United States.

Answer...?

9. To derive the demand curve from the indifference map,

Select one:

a. vary the prices of both goods while holding income constant.

b. vary the price of one good while holding the price of the other good and income constant.

c. vary income while holding the prices constant.

d. vary the price of one good and income while holding the price of the other good constant.

Answer...?

10. As an individual consumes more of a particular commodity, the total level of utility derived from that consumption will

Select one:

a. increase at a constant rate.

b. increase at a decreasing rate.

c. remain constant.

d. increase at an increasing rate.

Answer...?

11. Which of the following is a TRUE statement about stock markets?

Select one:

a. It is always better to buy growth stocks than the older and more stable blue-chip stocks.

b. Economists can make above-average profits in the stock market because of their specialized knowledge of economics.

c. It is illegal for a friend of a corporate executive to make large profits in the stock market by using his inside information.

d. The stock market on average over time is random and totally unrelated to the performance of the economy.

Answer...?

12. Income elasticity of demand is defined as

Select one:

a. the percentage change in demand divided by the percentage change in income.

b. the percentage change in income divided by the percentage change in quantity demanded.

c. the change in quantity demanded divided by the change in market price.

d. the change in quantity demanded divided by the change in income.

Answer...?

13. The consumption possibilities curve is the

Select one:

a. budget constraint.

b. indifference curve.

c. supply curve.

d. demand curve.

Answer...?

14. According to the random walk theory,

Select one:

a. the probability that a stock's price will increase tomorrow is greater if it increased today.

b. the probability that a stock's price will increase tomorrow is greater if it decreased today.

c. the best forecast of tomorrow's price is today's price.

d. the best forecast of tomorrow's price is found by determining the trend for the last five trading days.

Answer...?

15. "Unit elasticity of demand can be found everywhere along a straight-line demand curve with a slope of -1." Do you agree or disagree? Explain.

Answer:

16. For which of the following would the absolute price elasticity of demand be greatest?

Select one:

a. Pepsi Cola

b. Tickets to the Super Bowl

c. Salt

d. Gasoline

Answer...?

16. The price of a hamburger is $1 and the price of a movie is $4 and the consumer has $10. A consumer has purchased 2 hamburgers and 2 movies, receiving 25 units of utility for the second hamburger and 100 units of utility for the second movie. The set of goods

Select one:

a. is not an optimum because the marginal utility per dollar spent is greater for hamburgers than for movies.

b. is not an optimum because the consumer has not spent all of his money.

c. is an optimum since the entire income is spent and total utility is minimized.

d. is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good.

Answer...?

17. Marginal utility

Select one:

a. is stable, but then as a person consumes more of a good or service, has a propensity to increase.

b. equals the total satisfaction from consumption of goods and services.

c. can be thought of as being the equivalent to total utility.

d. at first rises and then declines as a person consumes more of a good or service.

Answer...?

18. The nominal rate of interest is 4% and the anticipated rate of inflation is 5%. What is the real rate of interest?

Select one:

a. 1%

b. 4%

c. -1%

d. 9%

Answer...?

19. Using the above table, what is the total utility of consuming 3 bottles of soda?

Select one:

a. 115

b. 135

c. 120

d. 240

Answer...?

20. Dead capital is

Select one:

a. machinery that fails to operate properly.

b. a capital resource that depreciates rapidly.

Answer...?

21. What is the annual rate of growth of per capita real GDP if real GDP grows at a constant rate of 5 percent per year and the annual rate of population growth is 3 percent?

Select one:

a. 1.7 percent

b. 8 percent

c. 5 percent

d. 2 percent

c. machinery that requires constant maintenance.

d. any capital resource that lacks clear title of ownership.

Answer...?

St. Joseph Health Center in St. Charles, Missouri, is on a quest to improve quality. Although good quality is important in any organization, it is especially vital (and urgent) in a medical setting. St. Joseph is one of 20 hospitals in four states that are operated by SSM Health Care Corp., which is sponsored by the Franciscan Sisters of Mary. In any given year, SSM hospitals admit about 150,000 patients and treat more than 1 million people on an outpatient basis. And SSM was the first health-care organization to win the Malcolm Baldrige National Quality Award, which recognizes the outstanding quality performance of US businesses and nonprofits.

Managers at the 364-bed St. Joseph facility have pursued continual improvment for more than 15 years. Early on, Dr. Filippo Ferrigni, head of the intensive-care unit, found that staff members used slightly different methods for measuring the blood pressure of different patients. He quickly standardized measurements for blood pressure, temperature, and other vital signs. Later, he read research showing that high blood-sugar levels are linked to higher infections risks. Knowing that patients sometimes become infected while in the hospital, he suggested the goal of lowering the blood-sugar levels of intensive-care patients.

Because his colleagues were concerned about possible adverse reactions to such treatment, Dr. Ferrigni initially sought very radual improvements. The results were quite impressive: over-all mortality among intensive-care patients dropped by 40%. To make this new process work, the nurses had to check each patient's blood-sugar level 12 times per day instead of 4 times per day; however, the results convinced them that the extra effor and additional tests were worthwhile. Building on the intensive-care unit's success, hospital management then set a quality goal of lowering the blood-sugar levels of all patients - a decision that cut the facility's overall mortality rate by 28% within three years. Treating a serious infection can cost $35,000 per patient, so reducing incidences of infection not only saved patients' lives, it saved the hospital many thousands of dollars.

The 30/30 program, another of St. Joseph's quality-improvement initiatives, requires emerfency room staff to evaluate seriously ill patients within 30 seconds and complete the patient admission process for in-hospital treament in 30 minutes or less. When the 30/30 program began, the facility was chieving its emergency-room objectives only 65% of the time. After two years, it was meeting its objectives 94% of the time. Management had to hire more staff members to achieve this improvement, which raised the cost of providing emergency-room care by $200,000 annually. The higher cost was more than offset by increases in admissions as St. Joseph gained a higher share of the local market for emergency medical treatment.

Quality improvements have led to financial improvements for St. Joseph and its parent company, SSM. Although SSM had no profits in 1999, it was reporting a net profit of $17 million by 2002, the year it was honored with the Baldrige Award. Winning was wonderful, but as Bill Thompson, SSM's senior vice president for strategic planning, says, "It's not thw award, it's the process that shows how to improve quality." In the course of applying for the award and having its results reviewed by examiners, SSM's management refined the processes for analyzing patient-care operations, setting quality-improvement standards, and assessing performance from internal and external perspectives.

St. Joseph's executives, like the top managers of all SSM institutions, are responsible for fomulating the hospital's strategy for serving the community and making decisons about which medical specialties will be offered. As in other SSM hospitals, senior managers evaluate results in terms of the number of procedures completed, market share, patient and staff satisfaction, revenue, and other measures. Patients benefit, staff members benefit, and the community benefits from SSM's focus on performance: "If the activity's not getting the results we want, then we change the activity. It's the result that's improtant."

Questions
1. Would you recommend that St. Joseph's top managers put more emphasis on efficiency or on effectiveness? Explain.
2. How have St. joseph's quality-improvement initiatives affected capacity strategy and product strategy?
3. Do you think that St. Joseph's executives should use management by exception for controlling emergency-room activites? Explain.

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