You Want to Evaluate Three Mutual Funds Using the Sharpe

question 18

Multiple Choice

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. $\begin{array}{cc} &\text {Average ReturnResidual } &\text { Standard Deviation }&\text { Beta }\\ \text { Fund A } &24\%&30\%&1.5\\ \text {Fund B } &12\%&10\%&0.5\\ \text { Fund C} &22\%&20\%&1.0\\\text {S\&P 500}&18\%&16\%&1.0\end{array}$

The fund with the highest Sharpe 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).

---

Definitions:

Above-average Values

Above-average values refer to data points or observations that exceed the average or mean value of the data set.

Scatterplot

A scatterplot is a graphical representation used to display the relationship between two variables, with data points plotted on a Cartesian coordinate system.

Form

The structure, appearance, or configuration of something, especially as distinct from its substance or content.

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two quantitative variables.