You Want to Evaluate Three Mutual Funds Using the Information

question 60

Multiple Choice

You want to evaluate three mutual funds using the information ratio measure for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 19%. The average returns, residual standard deviations, and betas for the three funds are given below. $\begin{array}{cc} &\text {Average ReturnResidual } &\text { Standard Deviation }&\text { Beta }\\ \text { Fund A } &20\%&4.00\%&0.8\\ \text {Fund B } &21\%&1.025\%&1.0\\ \text { Fund C} &23\%&1.20\%&1.2\\\end{array}$
The fund with the highest information ratio measure is

• A) Fund A.
• B) Fund B.
• C) Fund C.
• D) Funds A and B (tied for highest).
• E) Funds A and C (tied for highest).

Comprehend the structure and purpose of arguments.

Distinguish between inductive and deductive arguments and their implications for the truth of conclusions.

Understand the purpose of argumentation in persuading others.

Evaluate the quality of explanations and understand that not all explanations are equally valid.

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Definitions:

Statistical Significance

A statistical statement of how likely it is that an obtained result occurred by chance.

Scatterplot

A type of graph used in statistics to visually display the relationship between two quantitative variables by plotting their data points on a two-dimensional axis.

Intelligence Test

A standardized assessment designed to measure human intelligence and cognitive abilities.

Failing Grades

Academic scores that fall below the threshold required for passing, indicating unsatisfactory performance.