You are to compare two mutual funds' performance: Mutual Fund A has 15% return and 11% standard deviation, and 1.2 beta value; whereas Mutual Fund B has a rate of return of 9%, a standard deviation of 12%, and a beta of 0.45. The risk-free rate is 5%. (You must show your work to earn credit.) (1) Compute each mutual fund's Sharpe Measure (or Sharpe Ratio) and compare the calculated result and then select the fund that has a better performance. (2) Compute and compare the two funds' performance using Treynor's Measure, and select the best performing fund.
You are to compare two mutual funds' performance: Mutual Fund A has 15% return and 11% standard deviation, and 1.2 beta value; whereas Mutual Fund B has a rate of return of 9%, a standard deviation of 12%, and a beta of 0.45. The risk-free rate is 5%. (You must show your work to earn credit.) (1) Compute each mutual fund's Sharpe Measure (or Sharpe Ratio) and compare the calculated result and then select the fund that has a better performance. (2) Compute and compare the two funds' performance using Treynor's Measure, and select the best performing fund.
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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Qd 142.
Transcribed Image Text:You are to compare two mutual funds' performance: Mutual Fund A has 15% return
and 11% standard deviation, and 1.2 beta value; whereas Mutual Fund B has a rate
of return of 9%, a standard deviation of 12%, and a beta of 0.45. The risk-free rate is
5%. (You must show your work to earn credit.)
(1) Compute each mutual fund's Sharpe Measure (or Sharpe Ratio) and compare the
calculated result and then select the fund that has a better performance.
(2) Compute and compare the two funds' performance using Treynor's Measure, and
select the best performing fund.
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