Asked by Erica Cluff on May 09, 2024
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You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 5%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index.
The investment with the highest Sharpe measure is
A) Fund A.
B) Fund B.
C) Fund C.
D) the index.
E) Funds A and C (tied for highest) .
Sharpe Measure
A metric used to evaluate the risk-adjusted return of an investment portfolio.
Risk-Free Return
The guaranteed return on an investment with zero risk of financial loss, typically associated with government bonds.
Standard Deviation
Standard deviation is a statistical measure of the dispersion or variability of a set of data points, commonly used to quantify the risk associated with an investment's return.
- Absorb the essentials and calculations of risk-adjusted metrics, such as the Treynor measure, Sharpe measure, and Jensen's alpha.
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Learning Objectives
- Absorb the essentials and calculations of risk-adjusted metrics, such as the Treynor measure, Sharpe measure, and Jensen's alpha.
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