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you are working as an assistant to the manager of a fund that is very well diversified. The manager has asked you to suggest which

you are working as an assistant to the manager of a fund that is very well diversified.

The manager has asked you to suggest which of the following stocks that should be included in the portfolio, based on an appropriate measure.

If t-bills generates a return of 0.6 %, which of the following stocks is best suited to be included into the portfolio, and why?

E(r)

Iano

7.3 %

34.5 %

1.8

Back

7.6 %

11.5 %

2

Hanc

7.3 %

19.5 %

1.9

(In the computations displayed in the answers, percentages are represented in decimal version.)

a.

The Back stock is preferred since it's Sharpe measure of 0.358 is the best one

b.

The Iano stock is preferred since it's Treynor measure of 0.041 is the highest one.

c.

The Back stock is preferred since it's Treynor measure of 0.035 is the highest one.

d.

The Hanc stock is preferred since both the Sharpe and the Treynor measure is better than for the other stocks

e.

The Iano stock is preferred since it's Treynor measure of 0.037 is the highest one.

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