MEASURE OF RETURN

Illustration 1

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            A portfolio has a market value of  40 lakh at the beginning of the quarter and a market value of  48 lakh at the end of the quarter. What is the return on this portfolio for the quarter?

 

Illustration 2

A portfolio has a market value of  100 lakh at the beginning of the month. The client deposited  5 lakh in the portfolio just before the end of the month with the portfolio manager. At the end of the month, the market value of the portfolio was  101 lakh. Find the return on this portfolio.

 

Illustration 3

The details about Mutual fund and Market Portfolio are as follows:

Mutual Fund

Market

Average Rate of Return

22%

20%

Standard Deviation of Return

16%

14%

Beta

1.20

1.00

Risk free Return

12%

12%

Compare the portfolio performance of Mutual Fund as well as market using Sharpe’s and Treynor’s Index.

 

Illustration 4

Compare portfolio performance using Sharpe and Treynor measures for the following portfolios:

 

Average Return (%)

Standard Deviation

Beta

Portfolio A      Portfolio B Market Index

14%

10%

12%

0.25

0.15

0.25

1.25

1.10

1

The risk-free rate of return is 8%.

 

Illustration 5

Following information is given in respect of three Mutual Funds and Market:

Mutual

Average

Std.

Beta

Funds

Return

Deviation

 

A

12

18

1.1

B

10

15

0.9

C

13

20

1.2

Market

11

17

1.0

The mean risk-free rate 6%. Calculate the Treynor’s measure and Sharpe’s measure and rank the portfolios.

 

Illustration 6
The actual results of the portfolios and market index during the past three years are given below:

Portfolio

Return

Beta

Risk free rate

Birla

15%

1.2

9

Kotak

16%

1.5

9

Reliance

12%

0.8

9

Market index

13%

1.0

9

You are required to rank as per Jensen’s measure of portfolio return.

 

Illustration 7

Three mutual funds have reported the following return and risk for last five years.

Growth rate

RETURN

Standard Deviation

Beta

HDFC

15%

15%

1.10
ICICI

13%

16%

1.25
UTI

12%

10%

0.90

Compare the portfolio performance of Mutual Fund as well as market using Sharpe’s and Treynor’s Index. Which portfolio has better performance?

 

Illustration 8

            You are asked to analyse the two portfolios having the following characteristics:

Portfolio

Observed Return

Beta

Standard Deviation

Alpha

Gama

0.18

0.15

1.2

1.5

0.04

0.02

The risk-free rate of return is 0.09 and the return on Market Portfolio is 0.14 with Standard Deviation is 0.5. Compute the appropriate measure of performance of these portfolios and comment on their respective performance. Use Sharpe’s Index and Treynor’s Index.

 

Illustration 9

Based on the below mentioned data decide whether the portfolio has out performed the market in terms of Treynor, Sharpe and Jensen benchmark evaluation measures.

 

Particulars

Portfolio

Market

Average Return

7%

10%

Beta

0.4

1.00

Standard Deviation

3%

8%

Risk free rate

6%

6%

 

Illustration 10

Consider the following information for three Mutual Funds X, Y and Z.

Mutual Fund

Average Return

Standard Deviation

Beta

X

15%

20%

0.90

Y

17%

24%

1.10

Z

19%

27%

1.20

Risk-free Return is 10%.

Calculate Treynor’s Measure and Sharpe’s Measure and explain the difference.

  

Illustration 11

Particulars

Average Return

Beta

Rf.

X

10%

0.67

5%

Y

12%

0.90

5%

Z

15%

1.25

5%

Market Index

10%

1.00

5%

Calculate Jensen’s Measure.

Illustration 12

Consider the following information for three Mutual Funds X, Y and Z.

Mutual Fund Average Return Standard Deviation Beta

X

15%

20%

0.90

Y

17%

24%

1.10

Z

19%

27%

1.20

Risk-free Return is 10%

Calculate Treynor’s measure and Sharpe’s Measure and explain the difference.

( MU, BFM, Apr.2011)

 

Illustration 13

Solve:-                                                                                                                             

Particulars

Average Return

Beta

Rf.

X

10%

0.67

5%

Y

12%

0.90

5%

Z

15%

01.25

5%

Market Index

10%

1.00

5%

 

Calculate Jensen Measure and rank them.                                                                                                             

 

 For Solution/ Answer Please refer IAPM Textbook By Author Pawan Jhabak, Himalaya Publication.

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