You Want to Evaluate Three Mutual Funds Using the Jensen

question 53

Multiple Choice

You want to evaluate three mutual funds using the Jensen measure for performance evaluation.The risk-free return during the sample period is 6%,and the average return on the market portfolio is 18%.The average returns,standard deviations,and betas for the three funds are given below. $$\begin{array}{l}\begin{array} { l l l l } \text { Average Return } & \text { Standard Deviation }&\text { Beta } \\\text { Fund A } &17.6 \% & 10 \% & 1.2\\\text { Fund B } &17.5\%&20\%&1.0\\\text { Fund C } &17.4\%&30\%&0.8\\\end{array}\end{array}$$
The fund with the highest Jensen measure is _________.

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

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Definitions:

Depreciation

The measure of wearing out, consuming, or other loss of value of a depreciable asset arising from use, passage of time, or obsolescence through technology and market changes.

Gross Investment

The total amount spent on purchases of new capital and on replacing depreciated capital within a given period.

Capital Stock

Capital stock is the total amount of physical, non-consumable goods, or financial assets that a company uses for production of goods or services, including buildings, machinery, and equipment.

Investment Project

A specific plan or initiative undertaken by a business or organization involving capital investment aimed at achieving certain financial or strategic goals.