Consider the following historical performance data for two different portfolios, the Standard and Poor's 500, and the 90-day T-bill. Investment Average Rate of Standard Vehicle Return Deviation Beta R2 Fund 1 27.80% 22.30% 1.273 0.763 Fund 2 13.38 14.60 0.860 0.690 S&P 500 15.37 13.90 90-day T-bill 6.60 0.70 a. Calculate the Fama overall performance measure for both funds. Round your answers to two decimal places. Overall performance (Fund 1): % Overall performance (Fund 2): % b. What is the return to risk for both funds? Do not round intermediate calculations. Round your answers to two decimal places. Return to risk (Fund 1): % Return to risk (Fund 2): % c. For both funds, compute the measures of (1) selectivity, (2) diversification, and (3) net selectivity. Do not round intermediate calculations. Round your answers to two decimal places. Use a minus sign to enter negative values, if any. Selectivity Diversification Net selectivity Fund 1 % % % Fund 2 % % % d. Explain the meaning of the net selectivity measure and how it helps you evaluate investor performance. Which fund had the best performance? The net selectivity is an unexplained portion of the excess -Select- v performance is. -Select- v -Select- v diversification. The higher the net selectivity the -Select- v investor .... ..... | had the best performance.

Consider the following risk-return characteristics for funds A and B: Expected return Risk Fund A (Equity) 12% 20% Fund B (Debt) 9% 16% The correlation coefficient between the returns of fund A and fund B is 0.4. 1. Which Fund is riskier? Write 1 if your answer is Fund A, write 2 if your answer is Fund B, or write 3 if your answer is undetermined. 2.1 What is the weight of fund A in the minimum variance portfolio? 2.4 What is the risk of the minimum variance portfolio? 2.2 What is the weight of Fund B in the minimum variance portfolio? 2.3 What is the expected return of the minimum variance portfolio?

Compute the (a) expected return, (b) standard deviation, and (c) coefficient of variation for investments with the following probability distributions: (LO 8-2) Probability rA rB 0.3 30.0% 5.0% 0.2 10.0 15.0 0.5 - 2.0 25.0

Review the table below listing performance metrics for selected assets. The metrics are defined in the same way as in CAPM. Compute the CAPM alpha for the four assets (data attached as image).