You are given the following information concerning several mutual funds: Fund Return in Excess of the Treasury Bill Rate Beta A 12.4% 1.14 B 13.2% 1.22 C 11.4% 0.90 D 9.8% 0.76 E 12.6% 0.95 During the time period, the Standard & Poor's stock index exceeded the Treasury bill rate by 10.5 percent (i.e., r(m) - r(f) = 10.5%) a. Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.) b. The analysis in part (a) assumes each fund is sufficiently diversified so that the appropriate measure of risk is the beta coefficient. Suppose, however, this assumption does not hold and the standard deviation of each fund's return was as follows: Fund Standard Deviation of Return A 0.045 B 0.031 C 0.01 D 0.014 E 0.035
You are given the following information concerning several mutual funds: Fund Return in Excess of the Treasury Bill Rate Beta A 12.4% 1.14 B 13.2% 1.22 C 11.4% 0.90 D 9.8% 0.76 E 12.6% 0.95 During the time period, the Standard & Poor's stock index exceeded the Treasury bill rate by 10.5 percent (i.e., r(m) - r(f) = 10.5%) a. Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.) b. The analysis in part (a) assumes each fund is sufficiently diversified so that the appropriate measure of risk is the beta coefficient. Suppose, however, this assumption does not hold and the standard deviation of each fund's return was as follows: Fund Standard Deviation of Return A 0.045 B 0.031 C 0.01 D 0.014 E 0.035
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
| You are given the following information concerning several mutual funds: | ||||||||||||||||||
| Fund | Return in Excess of the Treasury Bill Rate | Beta | ||||||||||||||||
| A | 12.4% | 1.14 | ||||||||||||||||
| B | 13.2% | 1.22 | ||||||||||||||||
| C | 11.4% | 0.90 | ||||||||||||||||
| D | 9.8% | 0.76 | ||||||||||||||||
| E | 12.6% | 0.95 | ||||||||||||||||
| During the time period, the Standard & Poor's stock index exceeded the Treasury bill rate by 10.5 percent (i.e., r(m) - r(f) = 10.5%) | ||||||||||||||||||
| a. | Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.) | |||||||||||||||||
| b. | The analysis in part (a) assumes each fund is sufficiently diversified so that the appropriate measure of risk is the beta coefficient. Suppose, however, this assumption | |||||||||||||||||
| does not hold and the standard deviation of each fund's return was as follows: | ||||||||||||||||||
| Fund | Standard Deviation of Return | |||||||||||||||||
| A | 0.045 | |||||||||||||||||
| B | 0.031 | |||||||||||||||||
| C | 0.01 | |||||||||||||||||
| D | 0.014 | |||||||||||||||||
| E | 0.035 |
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