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Analyze the performance of two small-cap funds

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You are using Jensen's alpha to analyze the performance of two small-cap funds and will select one of those funds for the client to purchase. During the performance period being measured, the market returned 12.8% and treasury bills returned4.2%. The two funds had the following performance:

Fund Standard Deviation. Beta. Return
1. 21.2%. 1.19. 18.1%
2. 23.8%. 1.07. 17.5%

Which fund would you select, and why?

A. Fund 2, because alpha (0.041) is higher than Fund 1 's alpha (0.037)
B. Fund 1, because it's alpha (0.656) is higher than Fund 2's alpha (0.559)
C. Fund 1, because it's alpha (0.121) is higher than Fund 2's alpha (0.113)
D. Fund 2, because it's alpha (0.124) is lower than Fund 1's alpha (0.127)

I have used Jensen's alpha to calculate but I am not coming up with any of these numbers. I did not use the numbers for standard deviation. I would like to see your calculations for each fund and the difference to determine why my answer in coming up wrong.

Please show all math calculations and do not use an excel spreadsheet.

Reference no: EM133003909

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