You Want to Evaluate Three Mutual Funds Using the Sharpe

question 59

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. $\begin{array}{c}\begin{array}{lll}\text { } \\\text { } \\\text { } \\\text { Fund A } \\\text { Fund B } \\\text { Fund C } \\\text { S\&P 500 } \\\end{array}\begin{array}{lll}\text { } \\\text { Average } \\\text {Return } \\24\% \\21\% \\22\% \\18\%\end{array}\begin{array}{lll}\text {}\\\text { Standand } \\\text { Deviation.} \\\text {30\% } \\\text {10\% } \\\text { 20\% } \\16\%\end{array}\begin{array}{lll}\text { } \\\text { } \\\text {Beta } \\\text { 1.5 } \\\text { 0.5 } \\\text { 1.0 } \\1.0\end{array}\end{array}$
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).

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Definitions:

Inventory Turnover

A ratio indicating how many times a company's inventory is sold and replaced over a specific period.

Inventory

Refers to the goods and materials a business holds for the purpose of resale or production.

Cost Of Goods Sold

Costs that are directly related to the production of goods a company sells, encompassing expenses for labor and materials.

Profit Margin

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, highlighting the profitability of a company.