You Want to Evaluate Three Mutual Funds Using the Information

question 58

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. $\begin{array}{c}\begin{array}{lll}\text { } \\\text { } \\\text { } \\\text { Fund A } \\\text { Fund B } \\\text { Fund C } \\\end{array}\begin{array}{lll}\text { } \\\text { Average } \\\text {Return } \\20\% \\21\% \\23\% \\\end{array}\begin{array}{lll}\text {Residual } \\\text { Standand } \\\text { Deviation.} \\\text {4.00\% } \\\text {1.25\% } \\\text { 1.20\% } \\\end{array}\begin{array}{lll}\text { } \\\text { } \\\text {Beta } \\\text { 0.8 } \\\text { 1.0 } \\\text { 1.2 } \\\end{array}\end{array}$
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).

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Definitions:

Supply Chain

The network of manufacturers, suppliers, and logistics providers that work together to produce and deliver products to consumers.

Trade-Offs

The balancing of factors or outcomes in decision-making, where improving one aspect may result in compromising another.

Ordering Policies

Rules or guidelines that dictate how and when to place orders for materials or products, often aiming to minimize costs and meet demand.

Safety Inventory

Extra stock that is kept to mitigate the risk of stockouts caused by demand and supply variability.