A fund sponsor would like to appraise the performance of one of its portfolio managers and has
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A fund sponsor would like to appraise the performance of one of its portfolio managers and has gathered the following information: Average Standard Return Deviation Portfolio 15.00% 24.00% Market 12.00% 16.00% The risk-free rate is 2.50% and the portfolio's beta is 0.7.
(a) (i) Compute and interpret the portfolio's Treynor measure.
(ii) Using your answer to part evaluate the portfolio performance.
(iii) Using your answers to parts , infer the sign of Jensen's alpha and justify your inference.
(b) (i) Calculate and interpret the portfolio's M2 measure.
(ii) Using your answer to part evaluate the portfolio performance.
(iii) Illustrate your answer to part graphically.
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