Asked by Nicole Krane on Jun 29, 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 6%. 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 fund with the highest Sharpe measure is
A) Fund A.
B) Fund B.
C) Fund C.
D) Funds A and B (tied for highest) .
E) Funds A and C (tied for highest) .
Sharpe Measure
A ratio used to evaluate the risk-adjusted performance of an investment, considering both the return and the volatility of the investment.
Risk-Free Return
The theoretical return on investment with no risk of financial loss, typically associated with government bonds.
Standard Deviations
A statistical measure that quantifies the dispersion or spread of a set of data points relative to its mean, often used in the context of investment returns to measure volatility.
- Master the concepts surrounding different performance evaluation metrics (Sharpe, Treynor, Jensen's alpha, M2, and information ratio) and the procedures for their calculation.
- Appreciate the role of risk-free returns in the examination of investment performance.
Verified Answer
Learning Objectives
- Master the concepts surrounding different performance evaluation metrics (Sharpe, Treynor, Jensen's alpha, M2, and information ratio) and the procedures for their calculation.
- Appreciate the role of risk-free returns in the examination of investment performance.
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