CHAPTER CASE

A Job at SCHAPTER CASE

A Job at S

CHAPTER CASE

A Job at S&S Air

You recenty graduated from colepe, and you job seavh led you no SSS Ar$.$ Because pou fet the company's butisess was haded shywird, you accepted the job offec. As you ave frinhing your employmert paperwork, Chis Guttre. who mois in the finance depatment, whops by to intorn you wbout the companys new $45100$ plan. expenses. The largest axpense is trpically the managenest tee paid to the fund manager, whop makes all of the investnent decisions for the fund. Ss A Ar ubes Arias Findnolal Services as its $401(0)$ plan todminiturator.

Cris Outrie then explains that the retrement investment options oflered lor employees are as follows: putloly traded, the conypary mould buy h back of the then$-$curent appraited value. expentes of $20$ percent of assets per year. outside me United $ lates. Tils hind charges $1\mathrm{.}70$ percest of assets in axpentes per yeur. in six dif the luat elght yours. The fund charges $1\mathrm{.}59$ percent in expenses. $1,49$ percert in expenses.

OUESTIONS

What advartages$/$disadvantages do the muhaal lands ofler compared to compary stock for your netiement inesiting?

Notice that, for every dollar you invest, $$8$$ Air also invests a dollar. What retum on your investment does his neprebeest what does jour answer suggest about matching programs? Larpe$-$Compary Stock Fund compared to the Arias SiP $500$ inder Fund? mutual funds, you will notice that this fund also has the highest expenses. Wie this aflect your decision to invest in Fis fund?

A meature of risk$-$adjusted performarce that ohen is used in practice is the Shape rato. The Shape rate is calovaned as the fibk premium of an asset dvided by ias atandard deviation. The standand deviations and retums for the funds over the past $10$ years ase loled hene. Assuming a ribkhee nite of $1\mathrm{.}1$ percent, calculate the Sharpe rato for each of these. in broad terms, what do you suppose the Sharpe rato is intended to measure?

$\backslash$table$[[,,$Stredera Bevintion$],[$Arias SSP $500$ inder Fund,$12\mathrm{.}80\%,13\mathrm{.}38\%],[$Arias Small$-$Cap Fund,$45\mathrm{.}12,27\mathrm{.}38],[$Arlas Large$-$Company Stock Fund,$11\mathrm{.}15,21\mathrm{.}15],[$Arlas Bond Fund,$738,11\mathrm{.}45]]$