You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index. $$\begin{array} { | l | l | l | l | }
\hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \
\hline \text { Fund A } & 24 \% & 30 \% & 1.5 \
\hline \text { Fund B } & 12 \% & 10 \% & 0.5 \
\hline \text { Fund C } & 22 \% & 20 \% & 1.0 \
\hline \text { S\&P 500 } & 18 \% & 16 \% & 1.0 \
\hline
\end{array}$$ The fund with the highest Sharpe measure is __________.
A)Fund A
B)Fund B
C)Fund C
D)Funds A and B are tied for highest
E)Funds A and C are tied for highest

Question

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index. $$\begin{array} { | l | l | l | l | } 
\hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \
\hline \text { Fund A } & 24 \% & 30 \% & 1.5 \
\hline \text { Fund B } & 12 \% & 10 \% & 0.5 \
\hline \text { Fund C } & 22 \% & 20 \% & 1.0 \
\hline \text { S\&P 500 } & 18 \% & 16 \% & 1.0 \
\hline
\end{array}$$ The fund with the highest Sharpe measure is __________.
A)Fund A
B)Fund B
C)Fund C
D)Funds A and B are tied for highest
E)Funds A and C are tied for highest

Quizplus · Accepted Answer

The Sharpe ratio is calculated as (Average Return - Risk-Free Rate) / Standard Deviation. Fund C has the highest Sharpe ratio: (22% - 6%) / 20% = 0.8. Fund A's ratio is (24% - 6%) / 30% = 0.6, and Fund B's ratio is (12% - 6%) / 10% = 0.6.

You Want to Evaluate Three Mutual Funds Using the Sharpe