Investment companies and performance evaluation 1) Consider two different hedge funds with the following data related to performance: Hedge...

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Finance

Investment companies and performanceevaluation
1) Consider two different hedge funds with the followingdata related to performance:
Hedge fund Alpha Beta
Fund A   5% 1.6
Fund B   3% 0.8
Assuming that beta is consistent with the type ofinvesting we expected in both cases, which fund performedbetter.
A. Fund A, because it had the higher return
B. Fund A, because it had the higher alpha
C. Fund B, because its alpha is more impressive than Fund A when weconsider how much less risk the fund took.
D. Fund B, because the beta is closer to 1.
2) When we analyze the performance of an activelymanaged mutual fund we find that the fund generated a beta of 1 andan alpha of zero.
A. this result shows that the manager took no risk wheninvesting
B. this result shows that the manager did not add anyvalue to performance with his/her decision-making
C. both (A) and (B) are true
D. none of the above
3) Consider two different hedge funds with the followingdata related to performance:
Hedge fund Alpha Beta
Fund A   1% 0.8
Fund B   3% -0.3
Assuming that beta is consistent with the type of investing weexpected in both cases, which fund performed better?
A. Fund A, because Fund B should have negative alpha tomatch its negative beta
B. Fund A, because it had a higher beta than Fund B
C. Fund B, because its alpha is higher than Fund A.
D. Fund A, because the beta is closer to 1.
4) A positive alpha for a mutual fundmeans:
A. the fund invested in high-riskstrategies
B. the fund manager’s performance was bad
C. both (A) and (B)
D. none of the above

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4.2 Ratings (818 Votes)

ANSWERS QUESTION 1 OPTION C EXPLANATION Alpha indicates excess return over and above the market return Even though Fund A has an Alpha of 5 It has a Beta of 16 which indicates a higher volatilitymore fluctuation than the market On the other handFund B has an alpha of 3 With a Beta Of 08 which indicates a lower See Answer

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Investment companies and performanceevaluation1) Consider two different hedge funds with the followingdata related to performance:Hedge fund Alpha BetaFund A 5% 1.6Fund B 3% 0.8Assuming that beta is consistent with the type ofinvesting we expected in both cases, which fund performedbetter.A. Fund A, because it had the higher returnB. Fund A, because it had the higher alphaC. Fund B, because its alpha is more impressive than Fund A when weconsider how much less risk the fund took.D. Fund B, because the beta is closer to 1.2) When we analyze the performance of an activelymanaged mutual fund we find that the fund generated a beta of 1 andan alpha of zero.A. this result shows that the manager took no risk wheninvestingB. this result shows that the manager did not add anyvalue to performance with his/her decision-makingC. both (A) and (B) are trueD. none of the above3) Consider two different hedge funds with the followingdata related to performance:Hedge fund Alpha BetaFund A 1% 0.8Fund B 3% -0.3Assuming that beta is consistent with the type of investing weexpected in both cases, which fund performed better?A. Fund A, because Fund B should have negative alpha tomatch its negative betaB. Fund A, because it had a higher beta than Fund BC. Fund B, because its alpha is higher than Fund A.D. Fund A, because the beta is closer to 1.4) A positive alpha for a mutual fundmeans:A. the fund invested in high-riskstrategiesB. the fund manager’s performance was badC. both (A) and (B)D. none of the above