You Want to Evaluate Three Mutual Funds Using the Sharpe

question 52

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 5%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. $\begin{array}{cc} &\text {Average ReturnResidual } &\text { Standard Deviation }&\text { Beta }\\ \text { Fund A } &23\%&30\%&1.3\\ \text {Fund B } &20\%&19\%&1.2\\ \text { Fund C} &19\%&17\%&1.1\\\text {S\&P 500}&18\%&15\%&1.0\end{array}$
The investment with the highest Sharpe measure is

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

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Definitions:

Statistical Risk

Statistical risk quantifies the likelihood of a negative event occurring. It is often used in the context of financial markets, health studies, and other areas requiring risk assessment based on numerical data.

Variability

The extent to which data points in a statistical distribution or dataset differ from each other and from their mean.

Confidence Level

A statistical measure that indicates the degree of certainty or trust in the results obtained from a sample as representative of a larger population.

Inference

The process of drawing conclusions about a population based on a sample.