Question: You want to evaluate three mutual funds using the information ratio measure forperformance evaluation. The average return, beta and residual standard deviation forthe three funds

You want to evaluate three mutual funds using the information ratio measure forperformance evaluation. The average return, beta and residual standard deviation forthe three funds are given below.

You want to evaluate three mutual funds using the information ratio measure

The average risk-free return during the sample period is 3% p.a., and the averagereturn on the market portfolio is 12% p.a.

The fund with the highest information ratio measure is:

a.Funds Alpha and Beta (tied for highest).

b.Fund Alpha.

c.Fund Cubic.

d.Funds Alpha and Cubic (tied for highest).

e.Fund Beta.

Fund Alpha Beta Cubic Annual Average Return 14% 17% 20% Beta 0.65 0.85 1.10 Residual standard deviation 3.75% 4.85% 6.70% Fund Alpha Beta Cubic Annual Average Return 14% 17% 20% Beta 0.65 0.85 1.10 Residual standard deviation 3.75% 4.85% 6.70%

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