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Sandy McGregor is a portfolio manager at Tortoise Mutual Funds
Sandy McGregor is a portfolio manager at Tortoise Mutual Funds. Her portfolio P (the accelerated growth fund, AGF) has an expected return of 25%; a beta of 1.25; a standard deviation of 20%. The expected market return is 15% and the risk-free rate is 5%. Please estimate AGF's Sharpe, Treynor and Jensen O a. 0.40; 10.0 and 8.0 b. 1.0; 16.0; and 7.5 OC. 0.65; 10.0 and 6.0 d.0.75; 8.0; and 10.0
Expert Solution
Here
expected value of return= 25%
Beta= 1.25
Standard deviation= 20%
Expected Market return= 15%
Risk free rate= 5%
Sharpe Ratio =(Return on asset- risk free return) / Standard Deviation of Portfolio Return
= (25-5)%/20%
= 1
| Treynor Ratio | = |
(Total Portfolio Return – Risk-Free return) / Portfolio Beta |
= (25-5)/1.25
=16
Jensen's Alpha = Total Portfolio Return – Risk-Free Rate – [Portfolio Beta * (Market Return – Risk-Free Rate)]
= 25-5-[1.25*(15-5)]
= 7.5
So the correct option is B- 1.0 ; 16.0 and 7.5
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