You Want to Evaluate Three Mutual Funds Using the Sharpe

question 46

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 is the data for the S&P 500 index. $$\begin{array} { | l | l | l | l | } \hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \\\hline \text { Fund A } & 24 \% & 30 \% & 1.5 \\\hline \text { Fund B } & 12 \% & 10 \% & 0.5 \\\hline \text { Fund C } & 22 \% & 20 \% & 1.0 \\\hline \text { S\&P 500 } & 18 \% & 16 \% & 1.0 \\\hline\end{array}$$ The fund with the highest Sharpe 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:

Regression Toward

A statistical phenomenon that suggests that extreme scores or extreme behavior are likely to be closer to the average on subsequent observations or attempts.

Illusion of Control

The overestimation of one's ability to control events or outcomes that are largely or entirely beyond their actual influence.

Standard Deviation

An indicator of the extent of variability or scatter among a collection of numbers.

Low in Variability

Describes a set of data or a situation where there is little difference or diversity among the elements or outcomes.