Question

In: Finance

The following data are available relating to the performance of Rock Fund and the Market portfolio:...

The following data are available relating to the performance of Rock Fund and the Market portfolio:

Rock Fund

Market Portfolio

Average Return

18%

14%

Standard deviations of returns

30%

22%

Beta

1.4

1.0

Residual Standard Deviation

4.0%

0.0%

The risk-free return during the sample period was 6%.

Calculate the M2 measure for the Rock Fund?

Select one:

a. 0.8%

b. 40%

c. 20%

d. 4%

e. 2.86%

Solutions

Expert Solution

Given

Portfolio return Rp = 1.8

Market return Rm =1.4

Risk free rate Rf = 0.06

Standard deviation of returns: 2.2 and 3.0

M2 = (Rp-Rm)* (σm/σf) – (Rm-Rf)

M2 for the rockfund = (0.18-0.06)*(0.22/0.30)-(0.14-0.06)

                                     = 0.12*0.73333-0.08

                                     = 0.088-0.08

                                     = 0.008

M2 measure for the Rock fund is 0.008 or 0.8%

Answer: Option a is correct

jeff jeffy answered 2 years ago
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