Asked by David Chang on Jun 07, 2024
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You want to evaluate three mutual funds using the Treynor 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, in addition to information regarding the S&P 500 Index.
The fund with the highest Treynor 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) .
Treynor Measure
A performance metric for determining how well an investment compensates the investor for the risk taken, considering systematic risk.
Risk-Free Return
The theoretical return of an investment with zero risk, often represented by the yield of government bonds like U.S. Treasury bonds.
Betas
A metric that assesses the systematic risk or volatility faced by a security or portfolio in contrast to the entire market.
- Digest the range of performance evaluating measures (Sharpe, Treynor, Jensen's alpha, M2, and information ratio) and the mechanics of their computation.
- Discern the criticality of risk-free returns in the scrutiny of investment performance.
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Learning Objectives
- Digest the range of performance evaluating measures (Sharpe, Treynor, Jensen's alpha, M2, and information ratio) and the mechanics of their computation.
- Discern the criticality of risk-free returns in the scrutiny of investment performance.
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