Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
a. Using the data in the table below alculate the following performance measures.
i. Sharpe ratio
ii. Treynor measure
iii. Jensen’s alpha
iv. M-squared measure
v. T-squared measure, and
vi. Appraisal ratio (information ratio)
| Fund | Average return | Standard Deviation | Beta coefficient | Unsystematic Risk |
| A | 0.240 | 0.220 | 0.800 | 0.017 |
| B | 0.200 | 0.170 | 0.900 | 0.450 |
| C | 0.290 | 0.380 | 1.200 | 0.074 |
| D | 0.260 | 0.290 | 1.100 | 0.026 |
| E | 0.180 | 0.400 | 0.900 | 0.121 |
| F | 0.320 | 0.460 | 1.100 | 0.153 |
| G | 0.250 | 0.190 | 0.700 | 0.120 |
| Market | 0.220 | 0.180 | 1.000 | 0.000 |
| Risk free return | 0.050 | 0.000 |
b. Out of the performance measures you calculated in part a., which one would you use under
each of the following circumstances:
i. You want to select one of the funds as your risky portfolio.
ii. You want to select one of the funds to be mixed with the rest of your portfolio,
currently composed solely of holdings in the market-index fund.
iii. You want to select one of the funds to form an actively managed stock portfolio
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