Problem 13-19 Consider the following information for a mutual fund, the market i
ID: 2739203 • Letter: P
Question
Problem 13-19
Consider the following information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is .97.
What are the Sharpe and Treynor ratios for the fund? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
rev: 10_16_2014_QC_56623
Consider the following information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is .97.
Explanation / Answer
Working:
Calculation of standard deviation:
Calculation of average market return and average risk free return:
Calculation of beta:
Sharpe ratio = (Average fund return-Risk free return)/Standard deviation = (5-3.4)/14.80 = 0.11 Treynors ratio = (Average fund return-Risk free return)/Beta = (5-3.4)/-.51 = (3.14)