Please Please Answer As Soon As Possible You work for a private wealth management firm that follows an external investment model, whereby it decides which outside managers it should recommend to clients One mutual fund that is a candidate for inclusion on your Premier Recommended List of approved managers is Active Fund (AFNDX), an actively managed stock portfolio benchmarked to the Standard Poors 500 (SPX) Index You have been asked to perform an evaluation of AFNDXs past investment performance, using a sample of monthly returns on the following positions (1) AFNDX portfolio, (2) SPX Index, (3) U S Treasury bills, and (4) the three primary FamaFrench risk factors (excess market, SMB, and HML) These data are listed below Monthly Return Data for AFNDX, SPX, T Bill, and FamaFrench Factors RETURNS TO F F FACTOR RETURNS Month AFNDX SPX Index T Bill (RF) Excess Mkt SMB HML 1 9 260 2 748 0 430 0 970 4 040 4 620 2 7 568 7 560 0 410 6 160 3 460 0 090 3 2 103 1 983 0 450 1 600 3 130 1 080 4 5 083 6 253 0 450 4 850 1 590 2 530 5 1 740 0 792 0 390 0 470 2 550 4 830 6 5 032 4 105 0 430 4 860 0 310 3 850 7 4 054 5 965 0 440 3 810 5 150 1 200 8 8 069 6 085 0 480 6 650 4 610 4 080 9 3 397 4 486 0 380 4 060 1 360 0 840 10 6 897 7 962 0 440 7 200 2 360 0 690 11 0 286 5 601 0 420 4 050 7 450 0 910 12 3 081 5 470 0 450 5 360 2 570 0 390 13 1 609 3 332 0 420 3 830 0 930 2 520 14 2 928 4 632 0 400 2 720 5 060 1 040 15 0 443 1 724 0 490 1 330 2 330 3 590 16 1 068 1 099 0 430 0 020 1 010 1 680 17 8 574 7 204 0 380 6 890 0 300 1 240 18 3 797 5 118 0 390 4 760 1 440 1 920 19 0 730 1 015 0 430 0 650 0 410 0 230 20 2 561 1 714 0 400 2 950 3 620 4 300 21 4 639 4 065 0 410 2 870 3 410 1 540 22 1 791 1 060 0 400 2 720 4 520 1 790 23 17 067 14 434 0 440 16 100 5 910 5 690 24 15 710 6 414 0 450 5 960 0 020 3 750 25 3 534 8 132 0 310 7 110 3 350 2 840 26 3 590 6 054 0 310 5 870 1 370 3 680 27 10 009 5 755 0 380 5 950 0 320 4 950 28 6 631 4 186 0 350 3 460 1 150 6 150 29 4 199 3 110 0 360 4 150 5 580 1 670 30 5 421 4 004 0 420 3 330 3 820 3 030 31 0 796 3 871 0 380 4 470 2 890 2 790 32 3 530 2 366 0 330 2 380 3 450 3 070 33 4 749 5 538 0 400 4 720 3 420 4 320 34 0 754 3 120 0 370 3 450 2 000 0 690 35 1 865 0 502 0 380 1 350 1 170 1 270 36 1 191 2 728 0 380 2 690 3 240 3 190 37 7 073 6 331 0 380 5 800 6 540 3 180 38 2 437 2 033 0 370 3 190 7 710 8 080 39 10 063 5 892 0 430 7 820 6 970 9 060 40 3 854 5 015 0 410 4 420 4 080 0 170 41 5 785 1 888 0 430 2 550 21 480 12 040 For both AFNDX and SPX, calculate the series of monthly risk premia (stated returns in excess of the risk free rate) for the 41 month sample period Use these excess return data to compute the Sharpe ratio for both AFNDX and SPX Do not round intermediate calculations Round your answers to three decimal places Sharpe ratio for AFNDX Sharpe ratio for SPX Based on a regression of the excess returns to AFNDX on the excess returns to SPX, use regression analysis to calculate the active managers (1) one factor Jensens alpha coefficient, (2) beta coefficient, and (3) R squared measure Briefly explain what each of these statistics tells you about how AFNDX has been managed Do not round intermediate calculations Round your answers to four decimal places 1 Jensens alpha coefficient 2 Beta coefficient The fund is only slightly Select morelessItem 6 volatile than the market R squared measure It is Select higherlowerItem 8 than 0 50, which means that the funds performance Select isis notItem 9 statistically related to the benchmark The value indicates that the manager generated a Select higherlowerItem 4 return than what was expected given the portfolios risk level Using your work in parts (a) and (b), calculate the Treynor ratio performance measures for both AFNDX and SPX, assuming a beta coefficient of 1 00 for the latter Do not round intermediate calculations Round your answers to three decimal places Treynor ratio for AFNDX Treynor ratio for SPX Calculate the tracking error ( TE ) for AFNDX relative to the SPX benchmark, on both a monthly and an annualized basis What does this TE error measure suggests about the managers investment style Do not round intermediate calculations Round your answers to four decimal places Tracking error on a monthly basis Tracking error on an annualized basis The value of tracking error indicates that the Select activestructuredpassiveItem 18 managers investment style is used because the annualized TE is Select less than 1 0between 1 0 and 3 0over 3 0Item 19 Using the excess returns from part (a), compute the information ratio ( IR ) for AFNDX relative to the SPX benchmark on both a monthly basis and an annualized basis Briefly explain what this IR suggests about the managers investment prowess relative to the general equity market Do not round intermediate calculations Round your answers to four decimal places Information ratio on a monthly basis Information ratio on an annualized basis The managers investment prowess relative to the general equity market is considered as Select badgoodexceptionalItem 22 because the annualized IR is Select less than greater than or equal to 0 5 and less than 1 0 equal to 1 0 Estimate a regression of AFNDXs excess returns on the three FamaFrench risk factors Interpret each of the following components of your regression output (1) the intercept coefficient, (2) the beta coefficients for each of the three independent variables, and (3) the R squared measure Use a 5 level of significance Do not round intermediate calculations Round your answers to four decimal places Use a minus sign to enter negative values, if any Intercept coefficient Beta coefficients Excess market SMB HML R squared measure

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Please Please Answer As Soon As Possible You work for a private wealth management firm that follows an external investment model, whereby it decides which

Please Please Answer As Soon As Possible

You work for a private wealth management firm that follows an external investment model, whereby it decides which outside managers it should recommend to clients. One mutual fund that is a candidate for inclusion on your Premier Recommended List of approved managers is Active Fund (AFNDX), an actively managed stock portfolio benchmarked to the Standard & Poors 500 (SPX) Index. You have been asked to perform an evaluation of AFNDXs past investment performance, using a sample of monthly returns on the following positions: (1) AFNDX portfolio, (2) SPX Index, (3) U.S. Treasury bills, and (4) the three primary FamaFrench risk factors (excess market, SMB, and HML). These data are listed below.

Monthly Return Data for AFNDX, SPX, T-Bill, and FamaFrench Factors
	% RETURNS TO:			F-F FACTOR % RETURNS:
Month	AFNDX	SPX Index	T-Bill (RF)	Excess Mkt	SMB	HML
1	9.260	2.748	0.430	0.970	-4.040	4.620
2	7.568	7.560	0.410	6.160	-3.460	0.090
3	-2.103	-1.983	0.450	-1.600	3.130	1.080
4	5.083	6.253	0.450	4.850	-1.590	-2.530
5	-1.740	0.792	0.390	-0.470	-2.550	4.830
6	-5.032	-4.105	0.430	-4.860	-0.310	3.850
7	4.054	5.965	0.440	3.810	-5.150	-1.200
8	8.069	6.085	0.480	6.650	4.610	-4.080
9	3.397	4.486	0.380	4.060	1.360	0.840
10	6.897	7.962	0.440	7.200	-2.360	-0.690
11	0.286	-5.601	0.420	-4.050	7.450	0.910
12	3.081	5.470	0.450	5.360	2.570	-0.390
13	-1.609	-3.332	0.420	-3.830	-0.930	2.520
14	-2.928	4.632	0.400	2.720	-5.060	1.040
15	0.443	1.724	0.490	1.330	-2.330	3.590
16	-1.068	1.099	0.430	0.020	-1.010	-1.680
17	8.574	7.204	0.380	6.890	0.300	-1.240
18	3.797	5.118	0.390	4.760	-1.440	1.920
19	0.730	1.015	0.430	0.650	0.410	0.230
20	-2.561	-1.714	0.400	-2.950	-3.620	4.300
21	4.639	4.065	0.410	2.870	-3.410	-1.540
22	-1.791	-1.060	0.400	-2.720	-4.520	-1.790
23	-17.067	-14.434	0.440	-16.100	-5.910	5.690
24	15.710	6.414	0.450	5.960	0.020	-3.750
25	-3.534	8.132	0.310	7.110	-3.350	-2.840
26	3.590	6.054	0.310	5.870	1.370	-3.680
27	10.009	5.755	0.380	5.950	-0.320	-4.950
28	6.631	4.186	0.350	3.460	1.150	-6.150
29	-4.199	-3.110	0.360	-4.150	-5.580	1.670
30	5.421	4.004	0.420	3.330	-3.820	-3.030
31	0.796	3.871	0.380	4.470	2.890	2.790
32	-3.530	-2.366	0.330	-2.380	3.450	3.070
33	4.749	5.538	0.400	4.720	3.420	-4.320
34	-0.754	-3.120	0.370	-3.450	2.000	0.690
35	-1.865	-0.502	0.380	-1.350	-1.170	-1.270
36	-1.191	-2.728	0.380	-2.690	3.240	-3.190
37	7.073	6.331	0.380	5.800	-6.540	-3.180
38	2.437	2.033	0.370	3.190	7.710	-8.080
39	10.063	5.892	0.430	7.820	6.970	-9.060
40	-3.854	-5.015	0.410	-4.420	4.080	-0.170
41	5.785	-1.888	0.430	2.550	21.480	-12.040

For both AFNDX and SPX, calculate the series of monthly risk premia (stated returns in excess of the risk-free rate) for the 41-month sample period. Use these excess return data to compute the Sharpe ratio for both AFNDX and SPX. Do not round intermediate calculations. Round your answers to three decimal places.
Sharpe ratio for AFNDX:

Sharpe ratio for SPX:
Based on a regression of the excess returns to AFNDX on the excess returns to SPX, use regression analysis to calculate the active managers (1) one-factor Jensens alpha coefficient, (2) beta coefficient, and (3) R-squared measure. Briefly explain what each of these statistics tells you about how AFNDX has been managed. Do not round intermediate calculations. Round your answers to four decimal places.
1. Jensens alpha coefficient:
2. Beta coefficient:
1. The fund is only slightly -Select-morelessItem 6 volatile than the market.
2. R-squared measure:
  It is -Select-higherlowerItem 8 than 0.50, which means that the funds performance -Select-isis notItem 9 statistically related to the benchmark.
The value indicates that the manager generated a -Select-higherlowerItem 4 return than what was expected given the portfolios risk level.
Using your work in parts (a) and (b), calculate the Treynor ratio performance measures for both AFNDX and SPX, assuming a beta coefficient of 1.00 for the latter. Do not round intermediate calculations. Round your answers to three decimal places.
Treynor ratio for AFNDX:

Treynor ratio for SPX:
Calculate the tracking error (TE) for AFNDX relative to the SPX benchmark, on both a monthly and an annualized basis. What does this TE error measure suggests about the managers investment style? Do not round intermediate calculations. Round your answers to four decimal places.
Tracking error on a monthly basis:

Tracking error on an annualized basis:

The value of tracking error indicates that the -Select-activestructuredpassiveItem 18 managers investment style is used because the annualized TE is -Select-less than 1.0between 1.0 and 3.0over 3.0Item 19 .
Using the excess returns from part (a), compute the information ratio (IR) for AFNDX relative to the SPX benchmark on both a monthly basis and an annualized basis. Briefly explain what this IR suggests about the managers investment prowess relative to the general equity market. Do not round intermediate calculations. Round your answers to four decimal places.
Information ratio on a monthly basis:

Information ratio on an annualized basis:

The managers investment prowess relative to the general equity market is considered as -Select-badgoodexceptionalItem 22 because the annualized IR is -Select-less than greater than or equal to 0.5 and less than 1.0 equal to 1.0
Estimate a regression of AFNDXs excess returns on the three FamaFrench risk factors. Interpret each of the following components of your regression output: (1) the intercept coefficient, (2) the beta coefficients for each of the three independent variables, and (3) the R-squared measure. Use a 5% level of significance. Do not round intermediate calculations. Round your answers to four decimal places. Use a minus sign to enter negative values, if any.
1. Intercept coefficient:
2. Beta coefficients:
3. Excess market:
4. SMB:
5. HML: :
6. R-squared measure: