Question 2a)(Total: 5 marks)

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 4%. The average returns, standard deviations and betas for the three funds are given below, as is the data for the S&P 500 index.

Type of Fund	Average Return %	Standard Deviation %	Beta
Fund A	20	32	1.6
Fund B	17	30	1.3
Fund C	15	28	1.0
S&P 500	18	30	1.0

Requested: -

i) Calculate the Sharpe Ratio for Fund A, Fund B, Fund C and the S&P 500?

(4 marks)

ii) Which fund is the best fund to invest, why? Explain with an example. (1 mark)

(Subtotal 5 marks)

Question 2b)(Total: 10 marks)

The following data are available relating to the performance of Super Stock Fund and the market portfolio:

	Super	Market Portfolio
Average Return	18%	11%
Standard Deviation of Returns	24%	22%
Beta	1.25	1
Residual Standard Deviation	1	0

The risk-free return during the sample period was 3.5%per annum.

i) What is the information ratio measure of performance evaluation for Super Stock Fund? (2 marks)

ii) Calculate Sharpe's measure of performance for Super Stock Fund. (2 marks)

iii) Calculate Treynor's measure of performance for Super Stock Fund. (2 marks)

iv) Calculate Jensen's measure of performance for Super Stock Fund. (2 marks)

v) As a fund manager, how you reduce the Super Stock Fund risk? Explain with an example. (2 marks)