Question
Your client is willing to invest in Mutual funds industry to keep its portfolio diversified. Therefore he wants your advice in respect to which fund
Your client is willing to invest in Mutual funds industry to keep its portfolio diversified. Therefore he wants your advice in respect to which fund is better option for his risk level positions. He is risk averse investors and required high liquidity which enables him to meet day to day operations. You have gathered the data from Mutual funds and its allocation which are mentioned below:-
|
| Fund A | Fund B | Fund C |
| Cash & Cash Equivalents | 30.00% | 5.00% | 20.00% |
| Equity | 40.00% | 70.00% | 60.00% |
| Bonds | 30.00% | 25.00% | 20.00% |
| Total | 100.00% | 100.00% | 100.00% |
| Portfolio Return | 18.00% | 25.00% | 20.00% |
| Benchmark Index Return | 15.00% | 20.00% | 22.00% |
| Risk Free Rate of Return | 7.50% | 7.50% | 7.50% |
| Portfolio Risk (Variance) | 1.50% | 6.00% | 4.50% |
| Tracking error | 5% | 12% | 10% |
| Covariance with Market | 0.1425 | 0.2567 | 0.1555 |
| Variance of Market | 0.5752 | 0.1426 | 0.1825 |
Use above information to measure the different ratios for mutual funds evaluation.
- Sharpe Ratio
- Jensens Alpha
- Information Ratio
Recommend which fund is best suitable to clients risk and return profile.
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Essential Mathematics For Economic Analysis
Authors: Knut Sydsaeter, Peter Hammond, Arne Strom
4th Edition
0273760688, 9780273760689
