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An investor who uses only the Treynor ratio to evaluate the performance of a mutual fund is most likely to conclude:
a. Total risk is more important than systematic risk
b. The fund is not well-diversified.
c. A measure of market portfolio performance is essential to evaluate the fund
d. The beta of the fund captures the relevant risk of the fund.
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- Which of the following regarding the investor sentiment theory of the closed end fund puzzle is FALSE? a) Investors in closed end funds are not as important an ownership group in the assets of the funds’ investment portfolios. b) The closed end fund is riskier than the underlying portfolio. c) Arbitrageurs are subject to limits to arbitrage. d) The noise trader risk is diversifiable.Which of the following is most accurate in describing the problems of survivorship bias and backfill bias in the performance evaluation of hedge funds?a. Survivorship bias and backfill bias both result in upwardly biased hedge fund index returns.b. Survivorship bias and backfill bias both result in downwardly biased hedge fund index returns.c. Survivorship bias results in upwardly biased hedge fund index returns, but backfill bias results in downwardly biased hedge fund index returns.It measures how much rate of return the fund manager/fund generates per unit of systematic risk (beta)? a.PSE b.Jensen Index c.Treynor Index d. Sharpe Index
- You wish to evaluate which of the two equity funds delivered a better risk adjusted return in terms of Sharpe ratio with the risk free rate currently at 1.58% UIT Fund Fund Return Standard Deviation Equity Fund A 8.60% 20.12% Equity Fund B 8.91% 18.12% Calculate the Sharpe ratios for both equity funds A and B and state which fund had superior risk-adjusted performance during this period, as measured by the Sharpe ratioPerformance evaluation allows us to assess the performance of fund managers going beyond historical returns. In particular, we recognize that risk is anhinportant factor when assessing the performance of fund managers and hence it should be taken into account when evaluating fund managers. However,there are many measures used to assess this risk adjusted performance.a. Identify circumstances in which the Sharpe and Treynor indices can provide conflicting fund rankings and discuss why this is the case.b. Describe Jensen's alpha and the Carhart (1997) model.c. Describe how the information ratio is calculated and what it attempts to measure.An investor considers two mutual funds. Based on past experience, the first fund has an expected return of 0.08 and a standard deviation of 0.05. The second fund has an expected return of 0.07 and a standard deviation of 0.06. There is no reason to assume that future performance of these funds will differ from past performance. However, the second fund has a guarantee attached that the return in any year will not be negative.RequiredA. Which fund would a rational investor be likely to buy according to single-person decision theory?B. The investor buys the second fund. Use prospect theory to explain why.
- “If markets are semistrong-form efficient, investors would only adopt passiveinvestment strategies and buy into an index fund, rather than active strategies wherethey would have a portfolio manager select the components of their portfolios andseek for mispriced equities.” Explain if true or notA pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 6%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 24% 33% Bond fund (B) 14 22 The correlation between the fund returns is 0.14. What is the Sharpe ratio of the best feasible CAL? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.Why is it so hard for actively managed funds to generate higher rates of return than passively managed index funds having similar levels of risk? Is there a simple way for an actively managed fund to increase its average expected rate of return?
- A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long- term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (5) 19 % 34% Bond fund (8) 10 18 The correlation between the fund returns is 0.11. Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio.As an individual investor, you have three funds to invest into. The first is an equity fund, the second is a corporate bond fund, and the third is a T-bill money-market fund (your risk-free asset). Fund Expected rate of return Risk (Standard deviation) Equity fund 16% 32% Corporate bond fund 12% 18% T-bill money market fund 2% Correlation between equity fund and bond fund returns is 0.4. Find the Expected return of the minimum variance portfolio formed from Equity and Bond fundsIf you desire to forecast performance of a mutual fund for next year, the best forecast will be given by the a. geometric average return b. neither geometric average return nor arithmetic average return c. arithmetic average return d. both geometric average return and arithmetic average return You buy and hold a S&P 500 index fund. You always reinvest your dividends earned on the fund. Which method provides the best measure of the actual average historical performance of the investments you have chosen? a. both geometric average return and arithmetic average return b. neither geometric average return nor arithmetic average return c. arithmetic average return d. geometric average return