Calculate : M-squared measure T-squared measure, and Appraisal ratio (information ratio) Fund Average return Standard Deviation Beta coefficient Unsystematic Risk A 0.240 0.220 0.800 0.017 B 0.200 0.170 0.900 0.450 C 0.290 0.380 1.200 0.074 D 0.260 0.290 1.100 0.026 E 0.180 0.400 0.900 0.121 F 0.320 0.460 1.100 0.153 G 0.250 0.190 0.700 0.120 Market 0.220 0.180 1.000 0.000 Risk free return 0.050 0.000
Calculate : M-squared measure T-squared measure, and Appraisal ratio (information ratio) Fund Average return Standard Deviation Beta coefficient Unsystematic Risk A 0.240 0.220 0.800 0.017 B 0.200 0.170 0.900 0.450 C 0.290 0.380 1.200 0.074 D 0.260 0.290 1.100 0.026 E 0.180 0.400 0.900 0.121 F 0.320 0.460 1.100 0.153 G 0.250 0.190 0.700 0.120 Market 0.220 0.180 1.000 0.000 Risk free return 0.050 0.000
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 3PROB
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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
Calculate :
M-squared measure
T-squared measure, and
Appraisal ratio (information ratio)
| Fund | Average return | Standard Deviation | Beta coefficient | Unsystematic Risk |
| A | 0.240 | 0.220 | 0.800 | 0.017 |
| B | 0.200 | 0.170 | 0.900 | 0.450 |
| C | 0.290 | 0.380 | 1.200 | 0.074 |
| D | 0.260 | 0.290 | 1.100 | 0.026 |
| E | 0.180 | 0.400 | 0.900 | 0.121 |
| F | 0.320 | 0.460 | 1.100 | 0.153 |
| G | 0.250 | 0.190 | 0.700 | 0.120 |
| Market | 0.220 | 0.180 | 1.000 | 0.000 |
| Risk free return | 0.050 | 0.000 |
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