EBK ESSENTIALS OF INVESTMENTS
EBK ESSENTIALS OF INVESTMENTS
10th Edition
ISBN: 8220102800267
Author: Bodie
Publisher: YUZU
Question
Book Icon
Chapter 18, Problem 17PS
Summary Introduction

(a)

To calculate:

We have to collect the data as given in Connect and calculate each fund's excess return.

Expert Solution
Check Mark

Explanation of Solution

Excess returns are calculated as shown below. Period chosen is from 2004 to 2008.

    Total monthly returns

    Excess Returns

    Month

    Vanguard

    Value Fund

    S&P

    T-bills

    Vanguard

    Value Fund

    S&P

    Jan-04

    1.52

    -0.07

    1.35

    0.07

    1.45

    -0.14

    1.28

    Feb-04

    -0.53

    -0.99

    -1.32

    0.06

    -0.59

    -1.05

    -1.38

    Mar-04

    -2.69

    -2.46

    -1.89

    0.09

    -2.78

    -2.55

    -1.98

    Apr-04

    0.22

    2.52

    1.70

    0.08

    0.14

    2.44

    1.62

    May-04

    2.53

    1.39

    1.85

    0.06

    2.47

    1.33

    1.79

    Jun-04

    -1.93

    -7.46

    -3.22

    0.08

    -2.01

    -7.54

    -3.30

    Jul-04

    0.99

    -0.78

    0.25

    0.1

    0.89

    -0.88

    0.15

    Aug-04

    1.52

    2.49

    1.00

    0.11

    1.41

    2.38

    0.89

    Sep-04

    0.21

    1.46

    1.29

    0.11

    0.10

    1.35

    1.18

    Oct-04

    5.22

    4.66

    4.46

    0.11

    5.11

    4.55

    4.35

    Nov-04

    3.24

    3.60

    3.01

    0.15

    3.09

    3.45

    2.86

    Dec-04

    -2.36

    -3.48

    -2.24

    0.16

    -2.52

    -3.64

    -2.40

    Jan-05

    3.62

    0.79

    2.09

    0.16

    3.46

    0.63

    1.93

    Feb-05

    -2.33

    -2.86

    -1.83

    0.16

    -2.49

    -3.02

    -1.99

    Mar-05

    -2.68

    -2.41

    -1.87

    0.21

    -2.89

    -2.62

    -2.08

    Apr-05

    4.08

    7.13

    3.22

    0.21

    3.87

    6.92

    3.01

    May-05

    2.25

    0.51

    0.15

    0.24

    2.01

    0.27

    -0.09

    Jun-05

    3.55

    5.28

    3.82

    0.23

    3.32

    5.05

    3.59

    Jul-05

    -1.85

    -0.85

    -0.93

    0.24

    -2.09

    -1.09

    -1.17

    Aug-05

    0.38

    1.34

    0.80

    0.3

    0.08

    1.04

    0.50

    Sep-05

    -1.88

    0.30

    -2.36

    0.29

    -2.17

    0.01

    -2.65

    Oct-05

    2.87

    5.04

    4.39

    0.27

    2.60

    4.77

    4.12

    Nov-05

    0.93

    0.46

    -0.19

    0.31

    0.62

    0.15

    -0.50

    Dec-05

    3.41

    3.30

    2.41

    0.32

    3.09

    2.98

    2.09

    Jan-06

    0.00

    -1.82

    0.57

    0.35

    -0.35

    -2.17

    0.22

    Feb-06

    0.71

    0.34

    1.65

    0.34

    0.37

    0.00

    1.31

    Mar-06

    0.53

    -0.45

    1.26

    0.37

    0.16

    -0.82

    0.89

    Apr-06

    -3.00

    -5.84

    -3.01

    0.36

    -3.36

    -6.20

    -3.37

    May-06

    -0.27

    -1.55

    0.26

    0.43

    -0.70

    -1.98

    -0.17

    Jun-06

    1.09

    -2.36

    0.45

    0.4

    0.69

    -2.76

    0.05

    Jul-06

    2.70

    3.60

    2.18

    0.4

    2.30

    3.20

    1.78

    Aug-06

    2.63

    2.87

    2.70

    0.42

    2.21

    2.45

    2.28

    Sep-06

    2.56

    1.92

    3.16

    0.41

    2.15

    1.51

    2.75

    Oct-06

    0.75

    1.94

    1.99

    0.41

    0.34

    1.53

    1.58

    Nov-06

    2.32

    0.22

    0.77

    0.42

    1.90

    -0.20

    0.35

    Dec-06

    1.86

    2.18

    1.51

    0.4

    1.46

    1.78

    1.11

    Jan-07

    -2.30

    -1.69

    -1.96

    0.44

    -2.74

    -2.13

    -2.40

    Feb-07

    0.81

    0.89

    1.16

    0.38

    0.43

    0.51

    0.78

    Mar-07

    3.87

    2.92

    4.42

    0.43

    3.44

    2.49

    3.99

    Apr-07

    3.65

    3.37

    3.39

    0.44

    3.21

    2.93

    2.95

    May-07

    -2.02

    -1.14

    -1.46

    0.41

    -2.43

    -1.55

    -1.87

    Jun-07

    -4.74

    -0.79

    -3.13

    0.4

    -5.14

    -1.19

    -3.53

    Jul-07

    1.12

    1.11

    1.28

    0.4

    0.72

    0.71

    0.88

    Aug-07

    2.54

    4.91

    3.88

    0.42

    2.12

    4.49

    3.46

    Sep-07

    0.39

    2.19

    1.35

    0.32

    0.07

    1.87

    1.03

    Oct-07

    -5.86

    -3.90

    -3.87

    0.32

    -6.18

    -4.22

    -4.19

    Nov-07

    0.25

    0.00

    -1.13

    0.34

    -0.09

    -0.34

    -1.47

    Dec-07

    -5.39

    -10.34

    -6.04

    0.27

    -5.66

    -10.61

    -6.31

    Jan-08

    -2.67

    -2.38

    -2.58

    0.21

    -2.88

    -2.59

    -2.79

    Feb-08

    -0.89

    -0.06

    -0.90

    0.13

    -1.02

    -0.19

    -1.03

    Mar-08

    5.64

    6.32

    4.77

    0.17

    5.47

    6.15

    4.60

    Apr-08

    1.44

    3.00

    1.51

    0.17

    1.27

    2.83

    1.34

    May-08

    -7.18

    -6.25

    -8.35

    0.17

    -7.35

    -6.42

    -8.52

    Jun-08

    -1.80

    -0.40

    -0.90

    0.17

    -1.97

    -0.57

    -1.07

    Jul-08

    1.37

    0.45

    1.55

    0.15

    1.22

    0.30

    1.40

    Aug-08

    -7.50

    -11.63

    -9.42

    0.12

    -7.62

    -11.75

    -9.54

    Sep-08

    -18.16

    -15.45

    -16.52

    0.15

    -18.31

    -15.60

    -16.67

    Oct-08

    -7.16

    -7.93

    -6.96

    0.08

    -7.24

    -8.01

    -7.04

    Nov-08

    2.70

    0.57

    0.99

    0.02

    2.68

    0.55

    0.97

    Dec-08

    -10.76

    -4.49

    -8.22

    0.09

    -10.85

    -4.58

    -8.31

Conclusion

Excess returns have been shown in the spread sheet.

Summary Introduction

(b)

To calculate:

In this part of the problem we have to calculate standard deviation of each fund.

Expert Solution
Check Mark

Explanation of Solution

Standard deviation on excel can be calculated by using formula as = stdev
Then we have to choose the data accordingly to calculate standard deviation.

    Total monthly returns

    Excess Returns

    Month

    Vanguard

    Value Fund

    S&P

    T-bills

    Vanguard

    Value Fund

    S&P

    Jan-04

    1.52

    -0.07

    1.35

    0.07

    1.45

    -0.14

    1.28

    Feb-04

    -0.53

    -0.99

    -1.32

    0.06

    -0.59

    -1.05

    -1.38

    Mar-04

    -2.69

    -2.46

    -1.89

    0.09

    -2.78

    -2.55

    -1.98

    Apr-04

    0.22

    2.52

    1.70

    0.08

    0.14

    2.44

    1.62

    May-04

    2.53

    1.39

    1.85

    0.06

    2.47

    1.33

    1.79

    Jun-04

    -1.93

    -7.46

    -3.22

    0.08

    -2.01

    -7.54

    -3.30

    Jul-04

    0.99

    -0.78

    0.25

    0.1

    0.89

    -0.88

    0.15

    Aug-04

    1.52

    2.49

    1.00

    0.11

    1.41

    2.38

    0.89

    Sep-04

    0.21

    1.46

    1.29

    0.11

    0.10

    1.35

    1.18

    Oct-04

    5.22

    4.66

    4.46

    0.11

    5.11

    4.55

    4.35

    Nov-04

    3.24

    3.60

    3.01

    0.15

    3.09

    3.45

    2.86

    Dec-04

    -2.36

    -3.48

    -2.24

    0.16

    -2.52

    -3.64

    -2.40

    Jan-05

    3.62

    0.79

    2.09

    0.16

    3.46

    0.63

    1.93

    Feb-05

    -2.33

    -2.86

    -1.83

    0.16

    -2.49

    -3.02

    -1.99

    Mar-05

    -2.68

    -2.41

    -1.87

    0.21

    -2.89

    -2.62

    -2.08

    Apr-05

    4.08

    7.13

    3.22

    0.21

    3.87

    6.92

    3.01

    May-05

    2.25

    0.51

    0.15

    0.24

    2.01

    0.27

    -0.09

    Jun-05

    3.55

    5.28

    3.82

    0.23

    3.32

    5.05

    3.59

    Jul-05

    -1.85

    -0.85

    -0.93

    0.24

    -2.09

    -1.09

    -1.17

    Aug-05

    0.38

    1.34

    0.80

    0.3

    0.08

    1.04

    0.50

    Sep-05

    -1.88

    0.30

    -2.36

    0.29

    -2.17

    0.01

    -2.65

    Oct-05

    2.87

    5.04

    4.39

    0.27

    2.60

    4.77

    4.12

    Nov-05

    0.93

    0.46

    -0.19

    0.31

    0.62

    0.15

    -0.50

    Dec-05

    3.41

    3.30

    2.41

    0.32

    3.09

    2.98

    2.09

    Jan-06

    0.00

    -1.82

    0.57

    0.35

    -0.35

    -2.17

    0.22

    Feb-06

    0.71

    0.34

    1.65

    0.34

    0.37

    0.00

    1.31

    Mar-06

    0.53

    -0.45

    1.26

    0.37

    0.16

    -0.82

    0.89

    Apr-06

    -3.00

    -5.84

    -3.01

    0.36

    -3.36

    -6.20

    -3.37

    May-06

    -0.27

    -1.55

    0.26

    0.43

    -0.70

    -1.98

    -0.17

    Jun-06

    1.09

    -2.36

    0.45

    0.4

    0.69

    -2.76

    0.05

    Jul-06

    2.70

    3.60

    2.18

    0.4

    2.30

    3.20

    1.78

    Aug-06

    2.63

    2.87

    2.70

    0.42

    2.21

    2.45

    2.28

    Sep-06

    2.56

    1.92

    3.16

    0.41

    2.15

    1.51

    2.75

    Oct-06

    0.75

    1.94

    1.99

    0.41

    0.34

    1.53

    1.58

    Nov-06

    2.32

    0.22

    0.77

    0.42

    1.90

    -0.20

    0.35

    Dec-06

    1.86

    2.18

    1.51

    0.4

    1.46

    1.78

    1.11

    Jan-07

    -2.30

    -1.69

    -1.96

    0.44

    -2.74

    -2.13

    -2.40

    Feb-07

    0.81

    0.89

    1.16

    0.38

    0.43

    0.51

    0.78

    Mar-07

    3.87

    2.92

    4.42

    0.43

    3.44

    2.49

    3.99

    Apr-07

    3.65

    3.37

    3.39

    0.44

    3.21

    2.93

    2.95

    May-07

    -2.02

    -1.14

    -1.46

    0.41

    -2.43

    -1.55

    -1.87

    Jun-07

    -4.74

    -0.79

    -3.13

    0.4

    -5.14

    -1.19

    -3.53

    Jul-07

    1.12

    1.11

    1.28

    0.4

    0.72

    0.71

    0.88

    Aug-07

    2.54

    4.91

    3.88

    0.42

    2.12

    4.49

    3.46

    Sep-07

    0.39

    2.19

    1.35

    0.32

    0.07

    1.87

    1.03

    Oct-07

    -5.86

    -3.90

    -3.87

    0.32

    -6.18

    -4.22

    -4.19

    Nov-07

    0.25

    0.00

    -1.13

    0.34

    -0.09

    -0.34

    -1.47

    Dec-07

    -5.39

    -10.34

    -6.04

    0.27

    -5.66

    -10.61

    -6.31

    Jan-08

    -2.67

    -2.38

    -2.58

    0.21

    -2.88

    -2.59

    -2.79

    Feb-08

    -0.89

    -0.06

    -0.90

    0.13

    -1.02

    -0.19

    -1.03

    Mar-08

    5.64

    6.32

    4.77

    0.17

    5.47

    6.15

    4.60

    Apr-08

    1.44

    3.00

    1.51

    0.17

    1.27

    2.83

    1.34

    May-08

    -7.18

    -6.25

    -8.35

    0.17

    -7.35

    -6.42

    -8.52

    Jun-08

    -1.80

    -0.40

    -0.90

    0.17

    -1.97

    -0.57

    -1.07

    Jul-08

    1.37

    0.45

    1.55

    0.15

    1.22

    0.30

    1.40

    Aug-08

    -7.50

    -11.63

    -9.42

    0.12

    -7.62

    -11.75

    -9.54

    Sep-08

    -18.16

    -15.45

    -16.52

    0.15

    -18.31

    -15.60

    -16.67

    Oct-08

    -7.16

    -7.93

    -6.96

    0.08

    -7.24

    -8.01

    -7.04

    Nov-08

    2.70

    0.57

    0.99

    0.02

    2.68

    0.55

    0.97

    Dec-08

    -10.76

    -4.49

    -8.22

    0.09

    -10.85

    -4.58

    -8.31

    Average

    -0.59

    -0.60

    -0.55

    Standard Deviation

    4.05

    4.21

    3.81

Conclusion

Standard deviation for the two funds is 4.05 and 4.21.

Summary Introduction

(d)

To Calculate:

In this question we have to calculate Sharpe, Jensen and Treynor ratio for each fund.

Expert Solution
Check Mark

Explanation of Solution

All these ratios are calculated as:

Sharpe ratio=
Excess Return / standard devationEBK ESSENTIALS OF INVESTMENTS, Chapter 18, Problem 17PS , additional homework tip 1

Treynor=Excess return / BetaEBK ESSENTIALS OF INVESTMENTS, Chapter 18, Problem 17PS , additional homework tip 2
Jensen=αP = E(rP) − {rf + βP [E(rM) − rf]}

    Total monthly returns

    Excess Returns

    Month

    Vanguard

    Value Fund

    S&P

    T-bills

    Vanguard

    Value Fund

    S&P

    Jan-04

    1.52

    -0.07

    1.35

    0.07

    1.45

    -0.14

    1.28

    Feb-04

    -0.53

    -0.99

    -1.32

    0.06

    -0.59

    -1.05

    -1.38

    Mar-04

    -2.69

    -2.46

    -1.89

    0.09

    -2.78

    -2.55

    -1.98

    Apr-04

    0.22

    2.52

    1.70

    0.08

    0.14

    2.44

    1.62

    May-04

    2.53

    1.39

    1.85

    0.06

    2.47

    1.33

    1.79

    Jun-04

    -1.93

    -7.46

    -3.22

    0.08

    -2.01

    -7.54

    -3.30

    Jul-04

    0.99

    -0.78

    0.25

    0.1

    0.89

    -0.88

    0.15

    Aug-04

    1.52

    2.49

    1.00

    0.11

    1.41

    2.38

    0.89

    Sep-04

    0.21

    1.46

    1.29

    0.11

    0.10

    1.35

    1.18

    Oct-04

    5.22

    4.66

    4.46

    0.11

    5.11

    4.55

    4.35

    Nov-04

    3.24

    3.60

    3.01

    0.15

    3.09

    3.45

    2.86

    Dec-04

    -2.36

    -3.48

    -2.24

    0.16

    -2.52

    -3.64

    -2.40

    Jan-05

    3.62

    0.79

    2.09

    0.16

    3.46

    0.63

    1.93

    Feb-05

    -2.33

    -2.86

    -1.83

    0.16

    -2.49

    -3.02

    -1.99

    Mar-05

    -2.68

    -2.41

    -1.87

    0.21

    -2.89

    -2.62

    -2.08

    Apr-05

    4.08

    7.13

    3.22

    0.21

    3.87

    6.92

    3.01

    May-05

    2.25

    0.51

    0.15

    0.24

    2.01

    0.27

    -0.09

    Jun-05

    3.55

    5.28

    3.82

    0.23

    3.32

    5.05

    3.59

    Jul-05

    -1.85

    -0.85

    -0.93

    0.24

    -2.09

    -1.09

    -1.17

    Aug-05

    0.38

    1.34

    0.80

    0.3

    0.08

    1.04

    0.50

    Sep-05

    -1.88

    0.30

    -2.36

    0.29

    -2.17

    0.01

    -2.65

    Oct-05

    2.87

    5.04

    4.39

    0.27

    2.60

    4.77

    4.12

    Nov-05

    0.93

    0.46

    -0.19

    0.31

    0.62

    0.15

    -0.50

    Dec-05

    3.41

    3.30

    2.41

    0.32

    3.09

    2.98

    2.09

    Jan-06

    0.00

    -1.82

    0.57

    0.35

    -0.35

    -2.17

    0.22

    Feb-06

    0.71

    0.34

    1.65

    0.34

    0.37

    0.00

    1.31

    Mar-06

    0.53

    -0.45

    1.26

    0.37

    0.16

    -0.82

    0.89

    Apr-06

    -3.00

    -5.84

    -3.01

    0.36

    -3.36

    -6.20

    -3.37

    May-06

    -0.27

    -1.55

    0.26

    0.43

    -0.70

    -1.98

    -0.17

    Jun-06

    1.09

    -2.36

    0.45

    0.4

    0.69

    -2.76

    0.05

    Jul-06

    2.70

    3.60

    2.18

    0.4

    2.30

    3.20

    1.78

    Aug-06

    2.63

    2.87

    2.70

    0.42

    2.21

    2.45

    2.28

    Sep-06

    2.56

    1.92

    3.16

    0.41

    2.15

    1.51

    2.75

    Oct-06

    0.75

    1.94

    1.99

    0.41

    0.34

    1.53

    1.58

    Nov-06

    2.32

    0.22

    0.77

    0.42

    1.90

    -0.20

    0.35

    Dec-06

    1.86

    2.18

    1.51

    0.4

    1.46

    1.78

    1.11

    Jan-07

    -2.30

    -1.69

    -1.96

    0.44

    -2.74

    -2.13

    -2.40

    Feb-07

    0.81

    0.89

    1.16

    0.38

    0.43

    0.51

    0.78

    Mar-07

    3.87

    2.92

    4.42

    0.43

    3.44

    2.49

    3.99

    Apr-07

    3.65

    3.37

    3.39

    0.44

    3.21

    2.93

    2.95

    May-07

    -2.02

    -1.14

    -1.46

    0.41

    -2.43

    -1.55

    -1.87

    Jun-07

    -4.74

    -0.79

    -3.13

    0.4

    -5.14

    -1.19

    -3.53

    Jul-07

    1.12

    1.11

    1.28

    0.4

    0.72

    0.71

    0.88

    Aug-07

    2.54

    4.91

    3.88

    0.42

    2.12

    4.49

    3.46

    Sep-07

    0.39

    2.19

    1.35

    0.32

    0.07

    1.87

    1.03

    Oct-07

    -5.86

    -3.90

    -3.87

    0.32

    -6.18

    -4.22

    -4.19

    Nov-07

    0.25

    0.00

    -1.13

    0.34

    -0.09

    -0.34

    -1.47

    Dec-07

    -5.39

    -10.34

    -6.04

    0.27

    -5.66

    -10.61

    -6.31

    Jan-08

    -2.67

    -2.38

    -2.58

    0.21

    -2.88

    -2.59

    -2.79

    Feb-08

    -0.89

    -0.06

    -0.90

    0.13

    -1.02

    -0.19

    -1.03

    Mar-08

    5.64

    6.32

    4.77

    0.17

    5.47

    6.15

    4.60

    Apr-08

    1.44

    3.00

    1.51

    0.17

    1.27

    2.83

    1.34

    May-08

    -7.18

    -6.25

    -8.35

    0.17

    -7.35

    -6.42

    -8.52

    Jun-08

    -1.80

    -0.40

    -0.90

    0.17

    -1.97

    -0.57

    -1.07

    Jul-08

    1.37

    0.45

    1.55

    0.15

    1.22

    0.30

    1.40

    Aug-08

    -7.50

    -11.63

    -9.42

    0.12

    -7.62

    -11.75

    -9.54

    Sep-08

    -18.16

    -15.45

    -16.52

    0.15

    -18.31

    -15.60

    -16.67

    Oct-08

    -7.16

    -7.93

    -6.96

    0.08

    -7.24

    -8.01

    -7.04

    Nov-08

    2.70

    0.57

    0.99

    0.02

    2.68

    0.55

    0.97

    Dec-08

    -10.76

    -4.49

    -8.22

    0.09

    -10.85

    -4.58

    -8.31

    Average

    -0.59

    -0.60

    -0.55

    Sharpe ratio

    -0.15

    -0.14

    -0.14

    Alpha

    -0.03

    -0.04

    0.00

    Treynor

    -0.57

    -0.58

    -0.55

Conclusion
    Alpha-0.03-0.040.00
    Treynor-0.57-0.58-0.55

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Previous
Chapter 18, Problem 16PS
Next
Chapter 18, Problem 18PS

Chapter 18 Solutions

EBK ESSENTIALS OF INVESTMENTS

Ch. 18 - Prob. 1PSCh. 18 - Prob. 2PSCh. 18 - Prob. 3PSCh. 18 - 4. Two portfolio managers use different procedures...Ch. 18 - Prob. 5PSCh. 18 - Prob. 6PSCh. 18 - Prob. 7PSCh. 18 - Conventional wisdom says that one should measure a...Ch. 18 - Prob. 9PSCh. 18 - Prob. 10PS
Ch. 18 - Bill Smith is evaluating the performance of four...Ch. 18 - Prob. 12PSCh. 18 - Prob. 13PSCh. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Prob. 16PSCh. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - Prob. 1WMCh. 18 - Prob. 2WMCh. 18 - Prob. 3WMCh. 18 - Prob. 4WM
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Text book image
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:9781260013962
Author:BREALEY
Publisher:RENT MCG
Text book image
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage
Text book image
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Text book image
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Text book image
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
SEE MORE TEXTBOOKS