Performance metrics problem | Accounting homework help
Complete Problem 22 in the Questions and Problems section of Chapter 13 (shown below). When you pick the best choice for your portfolio, defend your decision in a 100- to 200-word essay.
You have been given the following return information for two mutual funds (Papa and Mama), the market index, and the risk-free rate.
|
Year |
Papa Fund |
Mama Fund |
Market |
Risk-Free |
|
2008 |
-12.6% |
-22.6 |
-24.5% |
1% |
|
2009 |
25.4 |
18.5 |
19.5 |
3 |
|
2010 |
8.5 |
9.2 |
9.4 |
2 |
|
2011 |
15.5 |
8.5 |
7.6 |
4 |
|
2012 |
2.6 |
-1.2 |
-2.2 |
2 |
Calculate the Sharpe ratio, Treynor ratio, Jensen’s alpha, information ratio, and R-squared for both funds and determine which is the best choice for your portfolio
22. Dollar-Weighted Average Return (LO3, CFA6) Suppose that an investor opens an account by investing $1,000. At the beginning of each of the next four years, he deposits an additional $1,000 each year, and he then liquidates the account at the end of the total five-year period. Suppose that the yearly returns in this account, beginning in year 1, are as follows: 12 percent, 5 percent, 8 percent, ﰇ7 percent, and ﰇ14 percent. Calculate the arithmetic and geometric average returns for this investment, and determine what the investor’s actual dollar-weighted average return was for this five-year period. Why is the dollar-weighted average return higher or lower than the geometric average return?
(BUS 405, p. 64)
BUS 405. McGraw-Hill Create. Retrieved from <vbk:9781121253254#page(64)>.
