Suppose that during the most recent 10 year period, the average annual total rate of return on the aggregate market portfolio, namely the All Ordinaries Accumulation Index, was 12 per cent, its standard deviation was 10 per cent, and the average annual risk free rate of return was 5 per cent. You are evaluating the following funds: Fund Beta A B C b) c) Average Annual Rate of Return% 12 6 8 0.90 1.05 1.20 Standard Deviation % 5.5 10.0 7.5 a) Calculate the Jensen performance measure for each of the funds. Your method of calculation must be clear. On the basis of the Jensen measure, which fund performed the worst? For Fund A, provide an interpretation of the Jensen performance measure you calculated. Briefly explain.
Suppose that during the most recent 10 year period, the average annual total rate of return on the aggregate market portfolio, namely the All Ordinaries Accumulation Index, was 12 per cent, its standard deviation was 10 per cent, and the average annual risk free rate of return was 5 per cent. You are evaluating the following funds: Fund Beta A B C b) c) Average Annual Rate of Return% 12 6 8 0.90 1.05 1.20 Standard Deviation % 5.5 10.0 7.5 a) Calculate the Jensen performance measure for each of the funds. Your method of calculation must be clear. On the basis of the Jensen measure, which fund performed the worst? For Fund A, provide an interpretation of the Jensen performance measure you calculated. Briefly explain.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose that during the most recent 10 year period, the average annual total rate of
return on the aggregate market portfolio, namely the All Ordinaries Accumulation
Index, was 12 per cent, its standard deviation was 10 per cent, and the average
annual risk free rate of return was 5 per cent. You are evaluating the following funds:
Fund
Beta
A
B
с
Average Annual
Rate of Return%
12
6
8
b)
c)
0.90
1.05
1.20
Standard
Deviation %
5.5
10.0
7.5
a) Calculate the Jensen performance measure for each of the funds. Your
method of calculation must be clear.
On the basis of the Jensen measure, which fund performed the worst?
For Fund A, provide an interpretation of the Jensen performance measure you
calculated. Briefly explain.
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