Assignment:
Tim is evaluating 4 funds run by 4 independent managers relative to a benchmark portfolio that has an expected return of 7.4% and volatility of 14%. He is interested in investing in the fund with the highest information ratio that also meets the following conditions in his investment guidelines:
• Expected residual return must be at least 2%
• Residual risk relative to the benchmark portfolio must be less than 2.5%
Based on the following information, which fund should he choose?
|
Fund
|
Expected Return
|
Volatility
|
Residual Risk
|
Information Ratio
|
|
Fund A
|
9.3%
|
15.3%
|
|
0.8
|
|
Fund B
|
|
16.4%
|
2.4%
|
0.9
|
|
Fund C
|
|
15.8%
|
1.5%
|
1.3
|
|
Fund D
|
9.4%
|
|
1.8%
|
|