Problems on Module VII: Portfolio Evaluation

1) Given below are the historical performance on the capital market and a mutual fund:
Year 1 2 3 4 5 6 7 8 9 10
Mutual fund Return (%) 17 33 41 13 29 11 6 26 15 21

Mutual Fund Beta 1.35 1.3 1.27 1.3 1.35 1.45 1.4 1.35 1.2 1.15

Market Return (%) 6 21 28 11 22 7 13 19 21 26

Return on Government Securities

8 7 8 9 9 6 6 9 9 8
(%)

Calculate the Sharpe’s ratio and Treyner’s ratio and comment on the fund performance.

2) A Mutual fund has earned an average annual return of 24% over a five year period while the
average market return over the same period was only 18%. The risk free rate prevailing at the
time was 7.5%. The mutual fund had a beta of 1.45. The S.D. of returns of the mutual fund
and the market index were 40 and 30% respectively. Calculate Fama’s net selectivity for the
fund, showing the decomposition of performance.

3) The data for 4 mutual funds is given below. You are required to calculate the Jensen’s ratio
AB XY PQ JK Market Index
Return (%) 14 12 19 23 18
Standard deviation (%) 22 20 25 30 27
Beta 1.1 0.9 1.2 1.5 1
Comment on the fund performance, assuming the risk free rate of return is 7%.

4) Given the following information calculate Jensen ratio and comment on the fund
performance
P Q R S
Beta 1.5 1 2 1.8
Return (%) 16 13 21 20
Standard
25 22 30 28
deviation(%)
5) Information regarding 4 mutual funds and the Market Index are given below:
Fund Return (%) Standard Deviation (%) Beta
A 10 20 0.5
B 16 25 0.8
C 21 30 1.1
D 28 35 1.2
Market Index 15 30 1
Assuming the risk free rate of return as 7%, calculate the differential returns of the funds and
comment.

6) The following data reveals returns for three portfolios and for the market.
Portfolio Return % Standard Deviation % Beta
A 8 15 1.3
B 12 20 1.1
C 20 29 0.9
Market Index 13 22 1
If, the rate for government securities is at 5%, calculate the differential returns of the
portfolios and give your conclusions.