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Calculate appropriate performance metric

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Reference no: EM131105501

The risk-free rate over the last five years was 1% per year. The market return averaged 13% per year with a standard deviation of 20%. The Copper Fund had an alpha of 2.5% per year with a beta of 0.7 while the Gold Fund had an alpha of 3.6% with a beta of 1.4. The Sharpe ratios of the two funds were 0.48 and 0.39 respectively. Investors hold these mutual funds in conjunction with others to create a well diversified portfolio of risky securities.

Is it valid to conclude that Gold Fund performed better because it had a higher alpha? Why or why not? Calculate appropriate performance metric to find the fund that performed better.

Reference no: EM131105501

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