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:

Inferential Statistics

A branch of statistics focused on drawing conclusions about a population based on a sample data set.

Interpreting Data

The process of analyzing and making sense of collected data, identifying patterns, trends, and drawing conclusions based on the data's implications.

Inferential Statistics

A branch of statistics that uses a random sample of data taken from a population to describe and make inferences about the population.

Practice A Lot

An approach or recommendation emphasizing the importance of repeated exercise or activity to improve or master skills.