You are given the following information concerning several mutual funds: Fund Return in Excess of the Treasury Bill Rate Beta A 12.4% 1.14 B 13.2% 1.22 C 11.4% 0.90 D 9.8% 0.76 E 12.6% 0.95 During the time period, the Standard & Poor's stock index exceeded the Treasury bill rate by 10.5 percent (i.e., r(m) - r(f) = 10.5%) a. Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.) b. The analysis in part (a) assumes each fund is sufficiently diversified so that the appropriate measure of risk is the beta coefficient. Suppose, however, this assumption does not hold and the standard deviation of each fund's return was as follows: Fund Standard Deviation of Return A 0.045 B 0.031 C 0.01 D 0.014 E 0.035

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter3: Data Visualization

Section: Chapter Questions

Problem 6P: The file MutualFunds contains a data set with information for 45 mutual funds that are part of the...

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Question

You are given the following information concerning several mutual funds:

Fund	Return in Excess of the Treasury Bill Rate	Beta
A	12.4%	1.14
B	13.2%	1.22
C	11.4%	0.90
D	9.8%	0.76
E	12.6%	0.95

During the time period, the Standard & Poor's stock index exceeded the Treasury bill rate by 10.5 percent (i.e., r(m) - r(f) = 10.5%)

a.	Rank the performance of each fund without adjusting for risk and adjusting for risk using the Treynor index. Which, if any, outperformed the market? (Remember, the beta of the market is 1.0.)

b.	The analysis in part (a) assumes each fund is sufficiently diversified so that the appropriate measure of risk is the beta coefficient. Suppose, however, this assumption
	does not hold and the standard deviation of each fund's return was as follows:

	Fund	Standard Deviation of Return
	A	0.045
	B	0.031
	C	0.01
	D	0.014
	E	0.035