You wish to compare the performance of two different mutual funds.Return ßpM_Fund A0.072 0.9M_Fund B 0.078 1.1During the same period, returns for the following were:S&P500rf0.0750.045Which mutual fund performed better on a risk-adjusted basis, i.e. RE:alpha?Pick the best answer, e.g. less negative alpha closer to 0 -- is better.Both funds delivered the same alpha or risk-adjusted returnsOne fund beat the S&P benchmarkBoth funds underperformed relative to their riskM_Fund B delivered positive alphaM_Fund B had higher alpha than M_Fund A

Alpha of fund shows the risk adjusted performance of the stock and show how much the stock has been…

Answered: You wish to compare the performance of…

You wish to compare the performance of two different mu M_Fund A M_Fund B Return ßp 0.072 0.9 0.078 1.1 During the same period, returns for the following were: S&P500 rf 0.075 0.045

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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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

You wish to compare the performance of two different mutual funds.
Return ßp
M_Fund A
0.072 0.9
M_Fund B 0.078 1.1
During the same period, returns for the following were:
S&P500
rf
0.075
0.045
Which mutual fund performed better on a risk-adjusted basis, i.e. RE:
alpha?
Pick the best answer, e.g. less negative alpha closer to 0 -- is better.
Both funds delivered the same alpha or risk-adjusted returns
One fund beat the S&P benchmark
Both funds underperformed relative to their risk
M_Fund B delivered positive alpha
M_Fund B had higher alpha than M_Fund A

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