Fund A has a sample mean of 0.13 and fund B has a sample mean...

60.1K

Verified Solution

Question

Finance

Fund A has a sample mean of 0.13 and fund B has a sample mean of0.18, with the riskier fund B having double the beta at 2.0 as fundA. The respective standard deviations for fund A and B are 15% and19%. The mean return for your market index is 0.12 with a standarddeviation of 8%, while the risk-free rate on the bond market is 8%.(a) Compute the Jensen Index for each of the funds. What does itindicate to you? (b) Compute the Treynor Index for the funds andthe market. Interpret the results. (c) Compute the Sharpe Index forthe funds and the market. (d) Which fund would you deem mostappropriate to invest all of a clients wealth into?

Answer & Explanation Solved by verified expert

4.2 Ratings (724 Votes)

a Beta of Fund B 2 Risk free rate 8 Mean return of market 012 Market risk premium Mean return of market risk free rate 012 8 12 8 4 According to CAPM Required return of Fund B Risk free rate beta of fund B x market risk premium 8 2 x 4 8 8 16 Jensen index for fund B Mean return of Fund B Required return of Fund B according to CAPM 018 16 18 16 2 Beta of Fund A Beta of Fund B 2 2 2 1 According to CAPM Required return of Fund A Risk free rate beta of fund A x market risk premium 8 1 x 4 8 4 12 Jensen index for fund A Mean return of Fund A Required return of Fund B according to CAPM 013 12 13 12 1 Jensens Index See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Fund A has a sample mean of 0.13 and fund B has a sample mean of0.18, with the riskier fund B having double the beta at 2.0 as fundA. The respective standard deviations for fund A and B are 15% and19%. The mean return for your market index is 0.12 with a standarddeviation of 8%, while the risk-free rate on the bond market is 8%.(a) Compute the Jensen Index for each of the funds. What does itindicate to you? (b) Compute the Treynor Index for the funds andthe market. Interpret the results. (c) Compute the Sharpe Index forthe funds and the market. (d) Which fund would you deem mostappropriate to invest all of a clients wealth into?