You have the following performance information given to you:

Benchmark Portfolio Joe's Portfolio Kim's Portfolio

Weight Return Weight Return Weight Return

Stocks 0.6 -5.00% 0.5 -4.00% 0.3 -5.00%

Bonds 0.3 3.50% 0.2 2.50% 0.4 3.50%

T-Bills 0.1 1.00% 0.3 1.00% 0.3 1.00%

The risk-free rate is 1% and the standard deviation for the Benchmark portfolio is 3.50%, Joe's portfolio is 5.00% and Kim's portfolio is 3.00%.

1. Compare Joe and Kim's performance relative to the benchmark in terms of portfolio returns.

2. If they are beating the market determine the sources of their success in terms of security selection and asset allocation.

a. Who is superior in security selection?

b. Who is superior in asset allocation?

3. Using the Sharpe Index, determine which manager is performing better than the market on a risk adjusted basis.