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Natali [406]
3 years ago
13

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sam

ple period is 6%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index.
Average Return Standard Deviation Beta
Fund A 24 % 30 % 1.5
Fund B 12 % 10 % 0.5
Fund C 22 % 20 % 1.0
S&P 500 18 % 16 % 1.0

The fund with the highest Sharpe measure is:

a. Fund A.
b. Fund B.
c. Fund C.
d. Funds A and B (tied for highest).
e. Funds A and C (tied for highest).
Mathematics
1 answer:
riadik2000 [5.3K]3 years ago
3 0

Answer:

The correct option based on the below computation of Sharpe ratio for all funds is option C,Fund C.

Step-by-step explanation:

Sharpe ratio=(Average return of the fund-risk free rate of return)/standard deviation of the fund

Risk free rate of return is 6%

Fund A:

Sharpe ratio=(24%-6%)/30%=0.6

Fund B:

Sharpe ratio=(12%-6%)/10%=0.6

Fund C:

Sharpe ratio=(22%-6%)/20%=0.8

Fund has a sharpe ratio of 0.8 ,unlike funds A& B that have a ratio of 0.6 each

In other words option C is correct

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