Your brother-in-law, Bil, fancies himself quite an investor, and he knows your sister, Hermana, also has “a bit of an interest in the markets.” So, he wants you to settle a dispute between them as to who is the better “market player.” Your research into their online brokerage trades has turned up the following performance information: Benchmark Portfolio Bil’s Portfolio Hermana’s Portfolio Weight Return Weight Return Weight Return Stocks 0.6 -5.00% Stocks 0.5 -4.00% Stocks 0.3 -5.00% Bonds 0.3 3.50% Bonds 0.2 2.50% Bonds 0.4 3.50% T-Bills 0.1 1.00% Cash 0.3 1.00% Cash 0.3 1.00% The risk-free rate is 1% and the standard deviation for the Benchmark portfolio is 3.50%, Bil’s portfolio is 5.00%, and Hermana’s portfolio is 3.00%. Compare Bil and Hermana’s performance relative to the benchmark in terms of portfolio returns. d. Using the Sharpe Index, determine which relative is performing better than the market on a risk adjusted basis.
INV4 5d
Your brother-in-law, Bil, fancies himself quite an investor, and he knows your sister, Hermana, also has “a bit of an interest in the markets.” So, he wants you to settle a dispute between them as to who is the better “market player.”
Your research into their online brokerage trades has turned up the following performance information:
|
Benchmark Portfolio |
Bil’s Portfolio |
Hermana’s Portfolio |
||||||
|
|
Weight |
Return |
|
Weight |
Return |
|
Weight |
Return |
|
Stocks |
0.6 |
-5.00% |
Stocks |
0.5 |
-4.00% |
Stocks |
0.3 |
-5.00% |
|
Bonds |
0.3 |
3.50% |
Bonds |
0.2 |
2.50% |
Bonds |
0.4 |
3.50% |
|
T-Bills |
0.1 |
1.00% |
Cash |
0.3 |
1.00% |
Cash |
0.3 |
1.00% |
The risk-free rate is 1% and the standard deviation for the Benchmark portfolio is 3.50%, Bil’s portfolio is 5.00%, and Hermana’s portfolio is 3.00%.
Compare Bil and Hermana’s performance relative to the benchmark in terms of portfolio returns.
d. Using the Sharpe Index, determine which relative is performing better than the market on a risk adjusted basis.
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