you work for a provate wealth management firm that follows an "external investment" model, whereby it decides which outside managers it should recommend to clients. One mutual fund that is a candidate for inclusion on your Premier Recommended List of approved managers is Active Fund (AFNDX), an actively managed stock portfolio benchmarked to the Standard & Poor's 500 (SPX) Index. You have been asked to perform an evaluation of AFNDX's past investment performance, using a sample of monthly returns on the following positions: (1) AFNDX portfolio, (2) SPX Index, (3) U.S. Treasury bills, and (4) the three primary Fama-French risk factors (excess market, SMB, and HML). These data are listed below.

You work for a private wealth management firm that follows an "external investment" model, whereby it decides which outside managers it should recommend to clients. One mutual fund that is a candidate for inclusion on your Premier Recommended List of approved managers is Active Fund (AFNDX), an actively managed stock portfolio benchmarked to the Standard & Poor's 500 (SPX) Index. You have been asked to perform an evaluation of AFNDX's past investment performance, using a sample of monthly returns on the following positions: (1) AFNDX portfolio, (2) SPX Index, (3) U.S. Treasury bills, and (4) the three primary Fama-French risk factors (excess market, SMB, and HML). These data are listed below. Monthly Return Data for AFNDX, SPX, T-Bill, and Fama-French Factors % RETURNS TO: F-F FACTOR % RETURNS: Month AFNDX SPX Index T-Bill (RF) Excess Mkt SMB HML 1 9.244 2.749 0.430 0.980 4.040 4.610 N 7.581 7.561 0.410 6.170 -3.460 0.090 3 -2.113 -1.978 0.470 -1.610 3.130 1.090 4 5.078 6.235 0.440 4.850 -1.580 -2.540 -1.736 0.791 0.400 -0.470 -2.540 4.840 6 -5.026 -4.102 0.430 -4.860 -0.320 3.860 4.054 5.955 0.430 CO 3.820 -5.140 -1.190 8.057 6.075 0.490 6.640 4.620 -4.090 9 3.396 4.483 0.360 4.050 1.350 0.830 10 6.890 7.953 0.440 7.210 -2.380 -0.700 11 0.286 -5.600 0.400 -4.070 7.430 0.910 12 3.064 5.479 0.450 5.370 2.580 -0.370 13 -1.610 -3.330 0.430 -3.840 -0.920 2.530 14 -2.929 4.618 0.380 2.730 -5.060 1.040 15 0.435 1.725 0.470 1.320 -2.320 3.590 16 -1.056 1.103 0.430 0.000 -1.000 -1.670 17 8.564 7.214 0.390 6.900 0.300 -1.230 18 3.804 5.118 0.380 4.750 -1.460 1.910 19 0.733 0.997 0.430 0.650 0.420 0.220 20 -2.552 -1.714 0.400 -2.940 -3.610 4.300 21 4.640 4.068 0.420 2.860 -3.400 -1.530 22 1.803 -1.055 0.390 -2.710 -4.510 -1.790 23 -17.060 -14.449 0.430 -16.110 -5.920 5.680 24 15.713 6.407 0.460 5.950 0.010 -3.770 25 -3.532 8.126 0.330 7.100 -3.370 -2.860 26 3.579 6.054 0.320 5.870 1.360 -3.680 27 10.003 5.767 0.370 5.950 -0.300 -4.960 28 6.624 4.187 0.360 3.460 1.140 -6.160 29 -4.196 -3.103 0.350 -4.140 -5.580 1.670 30 5.434 4.001 0.430 3.320 -3.810 -3.05031 0.795 3.876 0.360 4.460 2.900 2.790 32 3.524 2.353 0.350 -2.380 3.450 3.080 33 4.747 5.549 0.390 4.710 3.430 -4.330 34 0.752 -3.115 0.380 -3.450 2.000 0.690 35 -1.885 0.498 0.390 -1.350 -1.150 -1.270 36 -1.181 -2.736 0.390 -2.680 3.240 -3.180 37 7.073 6.336 0.400 5.810 -6.520 -3.180 38 2.433 2.040 0.350 3.190 7.700 -8.090 39 10.055 5.889 0.430 7.840 6.980 -9.060 40 -3.841 5.024 0.420 -4.430 4.070 -0.150 41 5.790 1.888 0.420 2.560 21.490 -12.020 a. For both AFNDX and SPX, calculate the series of monthly risk premia (stated returns in excess of the risk-free rate) for the 41- month sample period. Use these excess return data to compute the Sharpe ratio for both AFNDX and SPX. Do not round intermediate calculations. Round your answers to three decimal places. Sharpe ratio for AFNDX: Sharpe ratio for SPX: b. Based on a regression of the excess returns to AFNDX on the excess returns to SPX, use regression analysis to calculate the active manager's (1) one-factor Jensen's alpha coefficient, (2) beta coefficient, and (3) R-squared measure. Briefly explain what each of these statistics tells you about how AFNDX has been managed. Do not round intermediate calculations. Round your answers to four decimal places. 1. Jensen's alpha coefficient: The value indicates that the manager generated a |higher return than what was expected given the portfolio's risk level. 2. Beta coefficient: x The fund is only slightly |more volatile than the market. 3. R-squared measure: X It is higher than 0.50, which means that the fund's performance |is statistically related to the benchmark. c. Using your work in parts (a) and (b), calculate the Treynor ratio performance measures for both AFNDX and SPX, assuming a beta coefficient of 1.00 for the latter. Do not round intermediate calculations. Round your answers to three decimal places. Treynor ratio for AFNDX: Treynor ratio for SPX