Consider the following information for a mutual fund, the market index, and the
ID: 2711675 • Letter: C
Question
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 0.95.
Calculate Jensen’s alpha for the fund, as well as its information ratio. (Round your Jensen’s alpha answer to 2 decimal places & Information ratio answer to 4 decimal places. Omit the "%" sign in your response.)
Year Fund Market Risk-Free 2008 -15.13 % -25.5 % 2 % 2009 25.1 19.6 4 2010 12.5 9.7 2 2011 6.4 7.6 4 2012 -1.26 -2.2 3Calculate Jensen’s alpha for the fund, as well as its information ratio. (Round your Jensen’s alpha answer to 2 decimal places & Information ratio answer to 4 decimal places. Omit the "%" sign in your response.)
Explanation / Answer
Year Fund Market Risk-Free Beta beta *retun on market - risk free rate Jensens Alpha Informtion Ratio 2008 -15.13% -25.50% 2% 0.95 -26.13% 9.00% 2.2089 2009 25.10% 19.60% 4% 0.95 14.82% 6.28% 1.5422 2010 12.50% 9.70% 2% 0.95 7.32% 3.19% 0.7821 2011 6.40% 7.60% 4% 0.95 3.42% -1.02% -0.2505 2012 -1.26% -2.20% 3% 0.95 -4.94% 0.68% 0.1670 standard deviation of alpha 4.07% Jensens alpha = return on fund - (risk free rate +beta *retun on market - risk free rate) Information ratio = alpha/standard deviation of alpha
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