Question: Use the following information to answer questions a. - e. Fund or Return Sharpe Asset (%) Beta Ratio Risk-free 2 Market 6.5 Fund A 6

Use the following information to answer questions a. - e. Fund

Use the following information to answer questions a. - e. Fund or Return Sharpe Asset (%) Beta Ratio Risk-free 2 Market 6.5 Fund A 6 Fund B 11 Standard Deviation (%) 0 18 14 26 0 1 0.6 1.8 Alpha n.a. 0 1.3 ? n.a. 0.250 0.286 a. What is the alpha for fund B? b. Based on alpha, which fund displays superior performance? c. What is the Sharpe ratio for fund B? d. Based on the Sharpe ratio, which fund displays superior performance? e. Suppose you were using this information to recommend a portfolio to your client. What additional evidence would make you more confident that the fund you recommend has the ability to achieve superior perform in the future? (Hint: The answer has nothing to do with the Treynor Index.)

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