(a)
To calculate:
The sharpe ratios for the fund and index i.e. Miranda fund and S&P
Introduction:
Sharpe ratio is a ratio which helps in computing the reward-to-volatility ratio. This ratio gives an understanding of the incremental return which an investor will expect to earn on every
Answer to Problem 21PS
The sharpe ratio for Miranda fund is
Explanation of Solution
Given:
Risk free
One- Year Trailing Returns | ||
Miranda Fund | S&P 500 | |
Return | 10.2% | -22.5% |
Standard Deviation | 37% | 44% |
Beta | 1.10 | 1.00 |
The sharpe ratio is calculated by the following formula:
The sharpe ratio for Portfolio Miranda is:
The sharpe ratio for S&P
(b)
To calculate:
The
Introduction:
Answer to Problem 21PS
The
Explanation of Solution
Given:
Risk free rate of Return or T-bill Rate,
One- Year Trailing Returns | ||
Miranda Fund | S&P 500 | |
Return | 10.2% | -22.5% |
Standard Deviation | 37% | 44% |
Beta | 1.10 | 1.00 |
The
For computing
Now, the position of T-bills:
Thus, the
(c)
To calculate:
The treynor ratios for the fund and index i.e. Miranda fund and S&P
Introduction:
Treynor ratio is a ratio which helps in computing the reward-to-volatility ratio. This ratio provides excess return over expected in regard to systematic risk i.e. beta.
Answer to Problem 21PS
The treynor ratio for Miranda fund is
Explanation of Solution
Given:
Risk free rate of Return or T-bill Rate,
One- Year Trailing Returns | ||
Miranda Fund | S&P 500 | |
Return | 10.2% | -22.5% |
Standard Deviation | 37% | 44% |
Beta | 1.10 | 1.00 |
The treynor ratio is calculated by the following formula:
The treynor ratio for Portfolio Miranda is:
The treynor ratio for S&P
(d)
To calculate:
The Jensen measure i.e. alpha for the fund i.e. Miranda fund.
Introduction:
The alpha shows the performance of portfolio in relation to benchmark.
Answer to Problem 21PS
The Jensen measure for Miranda fund is
Explanation of Solution
Given:
Risk free rate of Return or T-bill Rate,
One- Year Trailing Returns | ||
Miranda Fund | S&P 500 | |
Return | 10.2% | -22.5% |
Standard Deviation | 37% | 44% |
Beta | 1.10 | 1.00 |
The Jensen measure i.e. alpha is calculated by the following formula:
The Jensen measure i.e. alpha for Portfolio Miranda is:
Thus, the Jensen alpha of the fund id
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Chapter 18 Solutions
Essentials Of Investments
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