mba

Analyze the following portfolios performance using Jensen index, Treynor index and Sharpe index versus the market:

Observed Rate of Return Beta (β) Residual Variance
Magic fund 15% 1.5 0.02
Shanti fund 10% 0.5 0.00

Risk-free rate of interest is 50%, return on the market portfolio is 12% and standard deviation is 0.04.

  1. 👍 0
  2. 👎 0
  3. 👁 164
  1. The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return (or risk premium) per unit of risk in an investment asset or a trading strategy, named after William Forsyth Sharpe. Since its revision by the original author in 1994, it is defined as:

    where R is the asset return, Rf is the return on a benchmark asset, such as the risk free rate of return, E[R − Rf] is the expected value of the excess of the asset return over the benchmark return, and σ is the standard deviation of the excess of the asset return. (This is often confused with the excess return over the benchmark return; the Sharpe ratio utilizes the asset standard deviation whereas the information ratio utilizes standard deviation of excess return over the benchmark, i.e. the tracking error, as the denominator.) Note, if Rf is a constant risk free return throughout the period,

    The Sharpe ratio is used to characterize how well the return of an asset compensates the investor for the risk taken, the higher the Sharpe ratio number the better. When comparing two assets each with the expected return E[R] against the same benchmark with return Rf, the asset with the higher Sharpe ratio gives more return for the same risk. Investors are often advised to pick investments with high Sharpe ratios. However like any mathematical model it relies on the data being correct. Pyramid schemes with a long duration of operation would typically provide a high Sharpe ratio when derived from reported returns, but the inputs are false. When examining the investment performance of assets with smoothing of returns (such as with-profits funds) the Sharpe ratio should be derived from the performance of the underlying assets rather than the fund returns.
    Sharpe ratios, along with Treynor ratios and Jensen's alphas, are often used to rank the performance of portfolio or mutual fund managers.

    1. 👍 0
    2. 👎 0

Respond to this Question

First Name

Your Response

Similar Questions

  1. math

    The UV index on a sunny day can be modeled by the function f(x)=-0.15(x-13)^2+7.6 where x represents the time of day on a 24-h clock and f(x) represents the UV index. At what time(s) was the UV index 7? (2 marks)

    asked by Alex on January 23, 2015
  2. computer science

    9.10: Reverse Array Write a function that accepts an int array and the array’s size as arguments. The function should create a copy of the array, except that the element values should be reversed in the copy. The function should

    asked by Cheryl on February 18, 2012
  3. Technology

    which fingers do you type: R T G V F with? right and left index fingers left index and middle fingers right index finger ** left index finger what is special about F and J? they have bumps they are in the exact center of the

    asked by Lili on September 6, 2016
  4. English

    Indicate where each aspect of an index card should be placed when researching. Match the letter that corresponds to one of the items below to the correct location (1, 2, 3, 4, or 5) on an index card A.) Page number B.) Title of

    asked by Cassie on April 21, 2014
  5. Physics

    Okay, I'm really confused in general. My question says: "A solid piece of clear transparent material has an index of refraction of 1.61. If you place it into a clear transparent solution and it seems to disappear, approximately

    asked by Jo on March 27, 2017
  1. Finance

    Your 401 (k) Account at East Coast Yachts You have been at your job for East Coat Yachts for a week now and have decided you need to sign up for the company’s 401(k) plan. Even after your decision with Sarah Brown, the Bledsoe

    asked by Kelly on October 23, 2010
  2. Math (PLEASE HELP!)

    1. The UV index on a sunny day can be modelled by the function y= -0.15(x-13)^2+7.6 , where x represents the time of day on a 24-h clock and f(x) represents the UV index. At what time(s) was the UV index 7? 2. Determine if each

    asked by Adam on June 18, 2015
  3. physics

    monochromatic light of wavelength λ=800nm illuminates normally a thin liquid film with nf =4/3 and t=500nm lying on a glass of refractive index n=2.5 The liquids refractive index can be continuously increased up to some limiting

    asked by asdfgh on June 14, 2011
  4. Physics

    Monochromatic light of wavelength, λ is traveling in air. The light then strikes a thin film having an index of refraction n1 that is coating a material having an index of refraction n2. If n2 is larger than n1, what minimum film

    asked by Julie on August 6, 2015
  5. Science

    Q12: A light ray is travelling from a medium with a larger index of refraction to a medium with a smaller index of refraction. Describe what happens as the angle of incidence gets larger and larger. Include the concept of the

    asked by Anonymous on October 2, 2012
  6. Algebra

    If 3 is the index, and there is no radicand, and inside of that radical is another radical with ten being the radicand, how could the result be 6 as the index with ten being the radicand? I thought you multiply the outer index

    asked by Eve on September 13, 2009

You can view more similar questions or ask a new question.