1. The risk-free rate, S&P 500 index, and the average return, standard deviation, beta, and residual standard deviation for three funds are given.

Fund	Avg. Return	Std. Dev.	Beta	Residual Std. Dev.
A B C S&P 500 Risk-free	18 25 22 12 4	15 30 20 10 0	1.3 1.4 1.2 1.0 0	1.5 2.5 3.0

1. Figure out the M² measure for Fund A and B.
2. Figure out the best fund based on the information ratio.

2. Use the following table.

	Your Portfolio		Benchmark Portfolio
	Weight	Return	Weight	Return
Bonds Stocks	20% 80%	6% 12%	40% 60%	4% 8%

1. Figure out your portfolio return and the total extra return.
2. Figure out the contribution of security/sector selection.