AB is an asset management company which has only two funds: A, a retail focused fund,...

 

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AB is an asset management company which has only two funds: A, a retail focused fund, and B, a technology focused fund. For the year ended 31 Dec 20X8, A company earned average annual return of 6% and B earned average annual return of 10%. XY company has invested 5% of their total assets equally in both the funds. Considering the average annual return of B fund is higher, XY's CEO suggested that the whole 5% assets should be invested in B fund. As CFO of XY company, you're asked by the board of directors to analyze CEO's suggestion and give evaluation of the performance of both funds according to the following information: 1. The risk-free rate for the period is 1%. 2. A fund's return rate standard deviation is 2%. 3. B fund's return rate standard deviation is 3%. 4. A fund's Portfolio Beta is 1.3. 5. B fund's Portfolio Beta is 2.3. 6. A fund's annualized downside deviation is 4%. 7. B fund's annualized downside deviation is 8%. Case Study Questions: (a) Please calculate the Sharpe Ratio for A fund and B fund respectively. (b) Please calculate the Treynor Ratio for A fund and B fund respectively. (c) Please calculate the Sortino Ratio for A fund and B fund respectively. (d) Do you agree with CEO's suggestion or not? Please explain your answer in detail with what you have learned in Topic 10. AB is an asset management company which has only two funds: A, a retail focused fund, and B, a technology focused fund. For the year ended 31 Dec 20X8, A company earned average annual return of 6% and B earned average annual return of 10%. XY company has invested 5% of their total assets equally in both the funds. Considering the average annual return of B fund is higher, XY's CEO suggested that the whole 5% assets should be invested in B fund. As CFO of XY company, you're asked by the board of directors to analyze CEO's suggestion and give evaluation of the performance of both funds according to the following information: 1. The risk-free rate for the period is 1%. 2. A fund's return rate standard deviation is 2%. 3. B fund's return rate standard deviation is 3%. 4. A fund's Portfolio Beta is 1.3. 5. B fund's Portfolio Beta is 2.3. 6. A fund's annualized downside deviation is 4%. 7. B fund's annualized downside deviation is 8%. Case Study Questions: (a) Please calculate the Sharpe Ratio for A fund and B fund respectively. (b) Please calculate the Treynor Ratio for A fund and B fund respectively. (c) Please calculate the Sortino Ratio for A fund and B fund respectively. (d) Do you agree with CEO's suggestion or not? Please explain your answer in detail with what you have learned in Topic 10.

Answer rating: 100% (QA)

XY Company Investment Analysis Background XY Company is considering the CEOs suggestion to invest all their 5 assets in the B fund which has a higher ... View the full answer