Determining market on the risk-adjusted basis

Reference no: EM1313627

Q1) You are given following information regarding 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	.99
D	9.8	0.76
E	12.6	.95

In the time period Standard & Poor's stock index surpass treasury bill rate by 10.5%

a) Rank performance of each fund with no adjusting for risk by using Treynor index. Which if any outperformed the market (Keep in mind the beta of market is 1.0)

b) Analysis in part (a) suppose each fund is suitably diversified so that suitable measure of risk is beta coefficient, assume, though this supposition doesn't hold and standard deviation of each funds return was as follow

Fund	Standard of deviation of return
A	0.045= 4.5%
B	0.031
C	0.01
D	0.014
E	0.035

Therefore, fund A earned a return if 12.4%, but approximately 68% of time this return has ranged from 7.9% to 16.9%. Standard deviation of market return is 0.01(ie 1 percent) so 68 percent of time, return on market has ranged from 9.5 to 11.5%. Rank the funds by using this alternative measure of risk. Which, if any outperformed the market on the risk-adjusted basis.

Reference no: EM1313627

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