Question $1$ Performance Evaluation $(20$ Marks$)$

You are a financial advisor at a local investment company in Johannesburg. A client has come

to you for professional advice. Based on the client$$s investment objectives and constraints, you

have identified two possible funds: Fund A and Fund B$.$ You have gathered the following

information to assist you with advising your client:

Fund A Fund B JSE All Share

Index $($market

portfolio$)$

Treasury Bills

Average return $16\%12\%8\%5\%$

Standard

deviation

$9\%8\%5\%0\%$

Beta $1\mathrm{.}211\mathrm{.}051\mathrm{.}000$

Residual

standard

deviation

$8\%6\%00$

Required:

$1\mathrm{.}1.$ Advise your client on which fund should be selected based on the Sharpe ratio and the M$2$

measure. $(9$ marks$)$

$1\mathrm{.}2.$ Advise your client on which fund should be selected based on the Treynor ratio and the T$2$

measure. $(9$ marks$)$

$1\mathrm{.}3.$ Advise your client of your final recommendation if the selected fund is going to be a standalone fund that will not be combined with other securities $(2$ marks$)$