Question

Kelli Blakely is a portfolio manager for the Miranda Fund (Miranda), a core large-cap equity fund. The market proxy and benchmark for performance measurement purposes is the S&P 500. Although the Miranda portfolio generally mirrors the asset class and sector weightings of the S&P, Blakely is allowed a significant amount of leeway in managing the fund. Her portfolio holds only stocks found in the S&P 500 and cash.

Blakely was able to produce exceptional returns last year (as outlined in the table below) through her market-timing and security selection skills. At the outset of the year, she became extremely concerned that the combination of a weak economy and geopolitical uncertainties would negatively impact the market. Taking a bold step, she changed her market allocation. For the entire year her asset class exposures averaged 50% in stocks and 50% in cash. The S&P’s allocation between stocks and cash during the period was a constant 97% and 3%, respectively. The risk-free rate of return was 2%.

One-Year Trailing Returns
	Miranda Fund			S&P 500
Return		10.2	%		−22.5	%
Standard deviation		37	%		44	%
Beta		1.10			1.00

a. What are the Sharpe ratios for the Miranda Fund and the S&P 500? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.)

	Sharpe Ratio
Miranda fund
S&P 500

b. What is the M² measure for Miranda? (Do not round intermediate calculations. Roundyour answerto 2 decimal places.)

M² measure  %

c. What is the Treynor measure for the Miranda Fund and the S&P 500? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answersto 4 decimal places.)

	Treynor Measure
Miranda
S&P 500

d. What is the Jensen measure for the Miranda Fund? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Jensen measure

Answer 1