You Want to Evaluate Three Mutual Funds Using the Sharpe

question 5

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.

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:

Comparative Advantage

The ability of a country, individual, company, or region to produce a good or service at a lower opportunity cost than its competitors, underpinning international trade theory.

Opportunity Cost

The sacrifice of potential advantages from various alternatives due to selecting one path.

Regulatory Capture

A situation in which industry regulatory agencies are dominated by the industries they are charged with regulating, leading to a conflict of interest.

Industry Regulation

A set of guidelines, rules, and laws designed to control the way businesses operate in specific sectors, aiming to protect consumers, ensure fair competition, and prevent environmental damage.