You Want to Evaluate Three Mutual Funds Using the Sharpe

question 34

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 4%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index.

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:

Malthusian Theory

A principle suggesting that population growth will outpace agricultural production, leading to widespread poverty and famine.

Law of Diminishing Returns

An economic principle stating that adding more of one factor of production, while holding others constant, will at some point yield lower per-unit returns.

Age of Mass Consumption

A stage of economic development where a significant portion of the population engages in the widespread consumption of goods and services, often seen as indicative of a higher standard of living.

Permanent Underclass

A group within society that holds the absolute lowest rank in the social class structure, situated beneath the main portion of the working class.