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    Module 5: Practical Problems (Risk Adjusted Returns) : As Per Sharpe Ratio Fund A Is A Better Option Than Fund B

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    Module 5: Practical Problems (Risk Adjusted Returns) : As Per Sharpe Ratio Fund A Is A Better Option Than Fund B

    Uploaded by

    anandrishav80
    8 views5 pages
    Investment management

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    5b996406-d26d-48dc-b676-9b52b72a3360-

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    Investment management

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    8 views5 pages

    Module 5: Practical Problems (Risk Adjusted Returns) : As Per Sharpe Ratio Fund A Is A Better Option Than Fund B

    Uploaded by

    anandrishav80
    Investment management

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Module 5 : Practical Problems (Risk Adjusted Returns)

    Q3.1

    Fund Return SD Risk-free rate of return Beta


    A 18.00% 3.00% 10.00% 0.5
    B 24.00% 7.00% 10.00% 0.1

    Comment on the performance of the funds using Sharpe Index & Treynor Index ?

    Ans 5.1

    Sharpe Ratio = Rp - Rf / SD

    Sharpe Ratio for Fund A


    18-10 / 3
    8/3
    2.67
    Sharpe Ratio for Fund B
    24-10 / 7
    14 / 7
    2.00

    As per sharpe ratio Fund A is a better option than Fund B

    Treynor Ratio = Rp - Rf / Beta

    Treynor Ratio for Fund A


    18-10 / .5
    8 / .5
    16.00
    Treynor Ratio for Fund B
    24-10 / .1
    14 / .1
    140.00

    As per sharpe ratio Fund B is a better option than Fund A


    Q5.2

    Fund Return SD Risk-free rate of return Beta


    A 12.00% 18.00% 7.00% 0.7
    B 19.00% 25.00% 7.00% 1.3
    M ( Market ) 15.00% 20.00% 7.00% 1

    Comment on the performance of the funds using Sharpe Index & Treynor Index ?
    Q5.3

    Particulars Portfolio P Market (M)

    Average Return 24.00% 15.00%

    Beta 1.2 1

    SD 30.00% 24.00%

    The risk-free rate during the period was 8%

    Calculate risk adjusted return measures for the above mentioned portfolio and market index
    Q5.4

    Consider the following information for mutual funds L, M & N and the market index

    Funds Mean Returns (%) SD (%) Beta

    L 24 22 1.8

    M 16 14 1.2

    N 12 13 .8

    Market 10 10 1

    The risk free rate is 7%. Calculate Treynor,Sharpe and Jensen’s Alpha for the given mutual
    funds and the market index
    Q5.5 The following table gives the detail regarding the expected return, beta and residual
    variance of the individual securities

    Security Expected Returns (Ri) Beta (𝛃) Residual variance (σei2)

    A 15 1 30

    B 12 1.5 20

    C 11 2 40

    D 8 .8 10

    E 9 1 20

    F 14 1 10

    The t-bill rate is 5% and the market variance is 10 . What is the optimum portfolio?

    Ranking the securities

    Selecting cut off rate

    Security Ci

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