Problem 22 in the Questions and Problems

Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a one­page essay following APA guide­
lines.
You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk­free rate. Year Papa
Fund Mama
Fund Market Risk­Free 2008 ­12.6% ­22.6% ­24.5% 1% 2009 25.4% 18.5% 19.5% 3% 2010 8.5% 9.2% 9.4% 2% 2011 15.5% 8.5% 7.6% 4% 2012 2.6% ­1.2% ­2.2% 2% Avg 7.88% 2.46% 1.96% 2.40% Standard Deviation 14.25% 15.66% 16.68% Tracking Error 4.68% 1.13% Alpha 5.84% .49% Beta .8099 .9342 Info Ratio 1.2478 .43362 Correlation .9635 .9996 Year Papa
Fund Ex­
cess Mama
Fund Ex­
cess Market
Ex­
cess Papa Fund Excess
Diff Mama Fund Excess Diff 2008 ­13.60% ­23.60% ­
25.50
% 11.90% 1.90% 2009 22.40% 15.50% 16.50
% 5.90% ­1.00% 2010 6.50% 7.20% 7.40% ­0.90% ­0.20% 2011 11.50% 4.50% 3.60% 7.90% 0.90% 2012 0.60% ­3.20% ­
4.20% 4.80% 1.00% Calculate the Sharpe ratio­
PF=(7.8­2.4) divided by 14.25=.384561
MF+(2.48­2.4) divided by 15.66=.005108
Treynor ratio (7.88­2.40) divided by 80.99 (Beta)=.06766
(2.48­2.40) divided by 93.42=.085634
Jensen’s alpha:
7.88­2.40­.8099 x (1.96­2.40)
7.88­2.40­ ­.356356=5.836356
2.48­2.40­.9342(2.48­2.40)
2.48­2.4­ ­.4119768=.4919768 information ratio :
5.84/4.68=1.24786
.49/1.13=.43362
Alpha divided by tracking error
R­squared for both funds and determine which is the best choice for your portfolio.
.9635 x .9635=.9283=92.83%
.9996 x .9996=99.92%

"Is this question part of your assignment? We can help"

ORDER NOW