28. Consider the following annual returns produced by a MiniFund, a mutual fund investing in small stocks:

Referring to Table 1.1, use the Treasury bill returns as the riskfree return and the common stock returns as the market return, and calculate the following risk-adjusted return measures for the small stock mutual fund:

a. Ex postalpha

b. Reward-to-volatility ratio

c. Reward-to-variability ratio Comment on the mutual fund's risk-adjusted performance. What problems are associated with using a large capitalization index such as the S&P 500 (the source of the common stock returns) as the benchmark in evaluating this small company mutual fund?

Transcribed Image Text:

1971 16.50% 1976 57.38% 1981 13.88% 1986 6.85% 1972 4.43 1977 25.38 1982 28.01 1987 -9.30 1973 -30.90 1978 23.46 1983 39.67 1988 22.87 1974 -19.95 1979 43.46 1984 -6.67 1989 10.18 1975 52.82 1980 39.88 1985 24.66 1990 -21.56