I need help solving question 2.b about computing the Sortino ratio. An example of the same question with answer is provided but withdifferentnumbers. I just need to figure out theformula an apply the other numbers.

Answer question 2.b Use the following information for Questions #1 and #2. Please refer to the following table of monthly returns for a hedge fund and an index portfolio. For the purpose of computation, the hurdle rate is the U.S. T-bill rate, assumed to be 4.5 percent per year. Month Hedge Fund Returns (%) Index Returns (%) January 3.40 2.30 February 4.00 4.00 March 2.10 1.70 April 2.00 3.00 May 1.20 4.40 June 0.90 2.00 July 1.00 2.50 August 1.50 1.90 September 3.00 1.70 October 4.00 1.00 November 0.90 3.20 December 3.00 0.50 A. Calculate the average rolling returns for the hedge fund if the investor's investment horizon is eight months. Rolling Return 1 (1.5-1+0.9-1.2-2-2+4+3.4)/8= 0.45 RR 2 0.46 RR 3 0.37 RR 4 0.233 Average (0.45 + 0.46 + 0.37 + 0.233)/4= 0.3783% B. Explain how rolling returns can provide additional information about the hedge fund's performance. The rolling returns plays a crucial role in defining the return of an entity within a given period. Further, the concept informs whether the project is cyclical or not. 2. Using the same information from Question #1, answer the following: A. Compute the annualized downside deviations for the hedge fund and the index, and contrast them to the standard deviation. The annualized standard deviations for the hedge fund and the index are, respectively, 8.54 percent and 9.17 percent. The hurdle rate per year is equals to 4.5% Therefore, the monthly hurdle rate is 4.5%/12= 0.375% Downside deviation for hedge fund 2.375^2+2.375^2+1.375^2+1.375^2+3.375^2=26.45 Square root of (26.45/ (12-1))*sqrt12=5.4% 2.675^2+4.375^2+2.075^2+4.775^2+2.275^2+2.075^2=62.88 Square root of (62.88/(12-1))*sqrt12=8.2% In respect to the evaluation, the downside deviation is low in comparison to the standard deviation. The result associates the fact that the deviation factors the downside deviation. Further, the hedge fund has a lower downside deviation when compared to the index fund. B. Compute the Sortino ratio and, based on this statistic, evaluate the performance of the hedge fund against the performance of the index portfolio. Use the following information for Questions #1 and #2. Please refer to the following table of monthly returns for a hedge fund and an index portfolio. For the purpose of computation, the hurdle rate is the U.S. T-bill rate, assumed to be 5 percent per year. Month Hedge Fund Returns (%) Index Returns (%) January 3.50 2.40 February 4.00 4.00 March 2.00 1.60 April 2.00 3.00 May 1.00 4.20 June 0.90 2.00 July 1.00 2.50 August 1.70 2.10 September 2.70 2.00 October 3.70 0.50 November 0.40 3.10 December 3.20 0.20 1. A. Calculate the average rolling returns for the hedge fund if the investor's investment horizon is nine months. A. The hedge fund's average nine-month rolling return: RR9,1 = (2.7 + 1.7 1 + 0.9 1 2 2 + 4 + 3.5)/9 = 0.7556% RR9,2 = 0.7778% RR9,3 = 0.3778% RR9,4 = 0.2444% Average = (0.7556 + 0.7778 + 0.3778 + 0.2444)/4 = 0.54% B. Explain how rolling returns can provide additional information about the hedge fund's performance. Rolling returns can show how consistent the returns are over the investment period and whether there is any cyclicality in the returns. 2. A. Compute the annualized downside deviations for the hedge fund and the index, and contrast them to the standard deviation. The annualized standard deviations for the hedge fund and the index are, respectively, 8.64 percent and 9.19 percent. A hurdle rate of 5% per year equates to a monthly hurdle rate of 5%/12 = 0.4167%. The downside deviation for the hedge fund = [28.78/(12 1)] 12 = 5.60%. The downside deviation for the index = [65.04/(12 1)] 12 = 8.42%. The downside deviation is lower than the standard deviation because downside deviation takes into account only the deviations on the downside. The downside deviation of the hedge fund is lower than that of the index in this case. B. Compute the Sortino ratio and, based on this statistic, evaluate the performance of the hedge fund against the performance of the index portfolio. Annualized return for the hedge fund = 0.6613% 12 = 7.9356%. Annualized return for the index = 0.449% 12 = 5.388%. The Sortino ratio for the hedge fund = (7.94 5)/5.6 = 0.53. The Sortino ratio for the index = (5.39 5)/8.42 = 0.05. The Sortino ratio of the hedge fund is much higher than that of the index, indicating that it provides greater return per unit of downside risk