You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 5%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index.

The investment with the highest Sharpe measure is
A) Fund A.
B) Fund B.
C) Fund C.
D) the index.
E) Funds A and C (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 5%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index.

The investment with the highest Sharpe measure is

The investment with the highest Sharpe measure is
A) Fund A. 
B) Fund B. 
C) Fund C. 
D) the index. 
E) Funds A and C (tied for highest).

Quizplus · Accepted Answer

A: (23% − 5%)/30% = 0.60; B: (20% − 5%)/19% = 0.789; C: (19% − 5%)/17% = 0.824; S&P 500: (18% − 5%)/15% = 0.867.

You Want to Evaluate Three Mutual Funds Using the Sharpe