Q1 Compute the following: Rf (p.a.) 5.

50%
1) Sharpe ratio 2) Treynor ratio
3) Jensens Alpha
Note: HPR Calculations must be in Percentage form with 2 decimals, for example, HPR = x.xx%

Holding Period Return

Day Stock A Stock B Sensex Stock A Stock B
1-Jan-20 22.60 83.38 29,893.96
2-Jan-20 23.33 86.20 31,159.62 3.21% 3.39%
3-Jan-20 23.00 85.38 30,690.02 -1.39% -0.96%
4-Jan-20 22.80 85.30 30,379.81 -0.87% -0.09%
5-Jan-20 22.95 86.23 30,602.61 0.66% 1.08%
6-Jan-20 23.45 88.43 31,588.72 2.18% 2.55%
7-Jan-20 23.45 88.15 31,648.00 0.00% -0.31%
8-Jan-20 22.95 86.08 30,636.71 -2.13% -2.35%
9-Jan-20 23.30 87.13 31,379.55 1.53% 1.22%
10-Jan-20 23.55 87.78 31,863.08 1.07% 0.75%
11-Jan-20 23.15 86.55 31,327.22 -1.70% -1.40%
12-Jan-20 23.40 87.30 31,743.08 1.08% 0.87%
13-Jan-20 23.58 87.53 32,114.52 0.75% 0.26%
14-Jan-20 23.88 88.50 32,720.16 1.27% 1.11%
15-Jan-20 24.35 90.50 33,717.62 1.99% 2.26%
16-Jan-20 23.43 87.35 31,715.35 -3.80% -3.48%
17-Jan-20 23.23 86.78 31,453.51 -0.85% -0.66%
18-Jan-20 23.40 87.35 31,685.75 0.75% 0.66%
19-Jan-20 23.28 86.83 31,443.38 -0.53% -0.60%
20-Jan-20 23.45 87.03 31,642.70 0.75% 0.23%
21-Jan-20 23.40 87.20 31,561.22 -0.21% 0.20%
22-Jan-20 23.33 87.28 31,371.12 -0.32% 0.09%
23-Jan-20 23.60 88.45 32,008.61 1.18% 1.35%
24-Jan-20 23.35 87.05 31,122.89 -1.06% -1.58%
25-Jan-20 23.35 87.03 31,097.73 0.00% -0.03%
26-Jan-20 22.80 84.80 30,028.98 -2.36% -2.56%
27-Jan-20 22.90 85.43 30,196.17 0.44% 0.74%
28-Jan-20 23.25 86.70 30,818.61 1.53% 1.49%
29-Jan-20 23.30 87.25 30,932.90 0.22% 0.63%
30-Jan-20 23.23 86.90 30,672.59 -0.32% -0.40%
31-Jan-20 23.15 87.13 30,609.30 -0.32% 0.26%
1-Feb-20 23.45 88.50 31,605.22 1.30% 1.58%
2-Feb-20 23.78 89.75 32,200.59 1.39% 1.41%
3-Feb-20 23.90 90.43 32,424.10 0.53% 0.75%
4-Feb-20 24.30 92.13 33,303.52 1.67% 1.88%
5-Feb-20 24.65 93.03 33,825.53 1.44% 0.98%
6-Feb-20 24.75 93.45 34,109.54 0.41% 0.46%
7-Feb-20 24.68 93.58 33,980.70 -0.30% 0.13%
8-Feb-20 24.88 94.80 34,287.24 0.81% 1.31%
g Period Return
Sensex Particulars Stock A Stock B
Avg Retn 0.26% 0.35%
4.23% Beta 0.66 0.65
-1.51% SD 1.39% 1.39%
-1.01% Annualised Returns 95.67% 127.00%
0.73% Annualised SD 26.47% 26.55%
3.22%
0.19% Sharpe 3.41 4.58
-3.20% Treynor 1.37 1.86
2.42% CAPM Required Returns 93.82% 93.27%
1.54% Jensen's Alpha 1.85% 33.73%
-1.68% Alpha (Ri-Rm) -43.87% -12.53%
1.33%
1.17% Why
CheckisBeta,
Jensen's Alpha
lower betapositive
accountsdespite Negative
for a lower Alpha?
required returns as per CAPM
1.89%
3.05% Stock is giving you higher returns than the CAPM / Required returns for the risk taken
-5.94% Should invest in Stock A,B despite lower absolute lower returns compared to the benchmark
-0.83%
0.74%
-0.76%
0.63%
-0.26%
-0.60%
2.03%
-2.77%
-0.08%
-3.44%
0.56%
2.06%
0.37%
-0.84%
-0.21%
3.25%
1.88%
0.69%
2.71%
1.57%
0.84%
-0.38%
0.90%
 Sensex
0.38%
1.00
2.06%
139.53%
39.35%

3.41
1.34
139.53%
0.00%
0.00%

for the risk taken

mpared to the benchmark
Q2
Year Mutual fund [MF] Index portfolio [M] Difference
2000 42% 5% 37.00%
2001 -3% 21% -24.00%
2002 42% 23% 19.00%
2003 63% -6% 69.00%
2004 33% 32% 1.00%
2005 57% 18% 39.00%
2006 60% 5% 55.00%
2007 24% 17% 7.00%
2008 -30% -12% -18.00%
2009 36% 10% 26.00%

The average rate of GOI bond for this period is can be assumed to
be 6% p.a. Evaluate the performance of the fund based on (a)
Sharpe Ratio (b) Treynor ratio (c) Jenson alpha (d) Information
Ratio (e) Appraisal Ratio

Solution: Standard deviation of Portfolio 29.28% =STDEV.S(B3:B12)

Standard deviation of Index 13.58% =STDEV.S(C3:C12)
Beta of Portfolio 0.3517 =SLOPE(B3:B12,C3:C12)
Expected return of portfolio 32.40% =AVERAGE(B3:B12)
Expected return of Index 11.30% =AVERAGE(C3:C12)
Risk Free Rate 6.00% Given
Sharpe Ratio 0.9015 =(E21-E23)/E18
Treynor Ratio 0.7507 =(E21-E23)/E20
Jensen's Alpha 24.54% =E21-(E23+E20*(E22-E23))
Active Return 21.10% =AVERAGE(D3:D12)
Active Return 21.10% =E21-E22
Active Risk 30.20% =STDEV.S(D3:D12)
A_Ret /A_Risk (IR) 0.6986 =E28/E29

Appraisal Ratio = Jens Alpha / Residual Risk 0.8492 =E26/SQRT(E35)

Total Risk using SIM 8.58% =E18^2
Systematic Risk Beta^2* Mkt Variance 0.23% =E20^2*E19^2
Residual Risk / Unsyst Risk 8.35% =E33-E34
Q3
A $10 million 10-day VaR figure with 95% confidence means:
(a) there is only a 5% chance that we will gain more than $10 million in 10 days.
(b) the VaR over the next day is $1 million with 95% confidence.
(c) the loss over the next 10 days is expected to be at most $10 million in 95% of the
cases.
(d) the minimum loss over the next 10 days is expected to be at least $10 million in 95%
of the cases.

Q4
Suppose two portfolios have the same average return and the same standard deviation
of returns, but portfolio A has a higher beta than portfolio B. According to the Treynor
measure, the performance of portfolio A

(a) is better than the performance of portfolio B

(b) is the same as the performance of portfolio B
(c) is poorer than the performance of portfolio B
(d) cannot be measured as there are no data on the alpha of the portfolio

Q5
Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is
0%, and the average return is 16%. Based on Jensen's measure of portfolio performance,
you would calculate the return on the market portfolio as
Solution:
(a) 12.30%
(b) 10.40%
(c) 15.10%
(d) 16.70%

Jensen's Alpha = Portfolio Returns - CAPM Returns

Since Jensen's Alpha is 0
Portfolio Returns = CAPM Returns

16% = 3% + 1.75*(Rm - 3%)

CAPM Returns 16.00% Use Goal Seek
Rm 10.43%
Q6 (a) Compute the Sortino ratio. Assume Risk-free rate to be 4.80% p.a.

Excess Subset (Rp- Rf) with Square of <--

Month Returns
Returns -ve returns only Column

1 0.89% 0.49% 0.00% 0.00%

2 0.12% -0.28% -0.28% 0.00%
3 -0.20% -0.60% -0.60% 0.00%
4 1.00% 0.60% 0.00% 0.00%
5 -0.02% -0.42% -0.42% 0.00%
6 2.00% 1.60% 0.00% 0.00%
7 3.00% 2.60% 0.00% 0.00%
8 1.00% 0.60% 0.00% 0.00%
9 -0.30% -0.70% -0.70% 0.00%
10 1.00% 0.60% 0.00% 0.00%
11 1.02% 0.62% 0.00% 0.00%
12 -1.00% -1.40% -1.40% 0.02%

Q6 (b) Following are the NAV details of a mutual fund. Compute the Sortino Ratio (daily
and annualised)

Date NAV Daily Rf Returns Excess Returns Subset (Rp- Rf) with
-ve returns only

1-Jul-22 128.87 0.02% 0.68% 0.65% 0.00%

4-Jul-22 129.74 0.02% 0.12% 0.10% 0.00%
5-Jul-22 129.89 0.02% 1.38% 1.36% 0.00%
6-Jul-22 131.68 0.02% 1.23% 1.21% 0.00%
7-Jul-22 133.30 0.02% 0.86% 0.84% 0.00%
8-Jul-22 134.44 0.02% 0.32% 0.30% 0.00%
11-Jul-22 134.87 0.02% -1.20% -1.22% -1.22%
12-Jul-22 133.25 0.02% -0.17% -0.19% -0.19%
13-Jul-22 133.02 0.02% -0.44% -0.46% -0.46%
14-Jul-22 132.44 0.02% 0.90% 0.88% 0.00%
15-Jul-22 133.63 0.02% 1.83% 1.81% 0.00%
18-Jul-22 136.08 0.02% 0.40% 0.38% 0.00%
19-Jul-22 136.62 0.02% 0.42% 0.40% 0.00%
20-Jul-22 137.20 0.02% 0.66% 0.64% 0.00%
21-Jul-22 138.10 0.02% 0.69% 0.67% 0.00%
22-Jul-22 139.05 0.02% -0.05% -0.07% -0.07%
25-Jul-22 138.98 0.02% -1.28% -1.30% -1.30%
26-Jul-22 137.20 0.02% 1.01% 0.99% 0.00%
27-Jul-22 138.58 0.02% 1.43% 1.41% 0.00%
28-Jul-22 140.56 0.02% 1.12% 1.10% 0.00%
29-Jul-22 142.14 0.02%
Downside Risk = SQRT ((SUMSQ(Downside Values/(n-1)))

Risk-free Rate - Annual 4.80% Given

Risk-free Rate - Monthly 0.40% =I3/12
Average Excess Returns - Monthly 0.31% =AVERAGE(C3:C14)
Average Excess Returns - Annual 3.71% =I5*12
Downside Risk - Monthly 0.53% =SQRT((SUMSQ(D3:D14))/(COUNT(D3:D14)-1))
Downside Risk - Annual 1.83% =I7*SQRT(12)
Sortino Ratio 2.03 =I6/I8

SumsQ 0.03% =SUMSQ(D3:D14)

OR - Sum of Squares 0.03% =SUM(E3:E14)
Check 1 =I11=I12

Average Excess Returns - Daily 0.47% =AVERAGE(E19:E38)

Average Excess Returns - Annual 173.08% =I20*365
Downside Risk - Daily 0.43% =SQRT((SUMSQ(F19:F38))/(COUNT(F19:F38)-1))
Downside Risk - Annual 8.12% =I22*SQRT(365)
Sortino Ratio 21.31 =I21/I23
 NT(D3:D14)-1))

UNT(F19:F38)-1))
Q7 (a)
Monica Fund Rachel MF Friends Benchmark MF Excess RF Excess
Month
Returns Returns Returns Returns Returns
1 10.00% 9.80% 9.00% 1 1
2 11.50% 11.27% 13.50% 0 0
3 13.00% 12.74% 12.00% 1 1
4 9.00% 11.25% 10.00% 0 1
5 8.00% 7.84% 6.00% 1 1
6 6.50% 6.37% 5.50% 1 1
7 3.75% 3.68% -0.25% 1 1
8 12.00% 24.00% 16.00% 0 1
9 10.00% 9.80% 11.50% 0 0
10 4.50% 4.41% 3.00% 1 1
11 20.00% 19.60% 19.50% 1 1
12 14.00% 13.72% 14.25% 0 0

Q7 (b)
Mid Cap Fund 1 Mid Cap Fund 2 Funds Benchmark Mid Cap Fund 1 Mid Cap Fund 2
Month
returns returns Returns returns returns
Apr-21 9.50% 9.31% 9.41% 1 0
May-21 8.75% 8.58% 10.66% 0 0
Jun-21 11.00% 10.78% 11.96% 0 0
Jul-21 8.66% 8.49% 7.53% 1 1
Aug-21 7.63% 7.48% 7.55% 1 0
Sep-21 4.50% 4.41% 6.99% 0 0
Oct-21 3.75% 3.68% 4.78% 0 0
Nov-21 6.78% 6.64% 4.99% 1 1
Dec-21 7.39% 7.24% 8.32% 0 0
Jan-22 9.33% 9.14% 10.25% 0 0
Feb-22 10.05% 9.85% 10.95% 0 0
Mar-22 11.22% 11.00% 9.78% 1 1
Monica MF
Total No. of Months excess returns 7 =SUM(E3:E14)
Total No. of Months 12 Given
Batting Average 58.33% =L4/L5

Rachel MF
Total No. of Months excess returns 9 =SUM(F3:F14)
Total No. of Months 12 Given
Batting Average 75.00% =L9/L10

Mid Cap 1
Total No. of Months excess returns 5 =SUM(E20:E31)
Total No. of Months 12 Given
Batting Average 41.67% =L21/L22

Mid Cap 2
Total No. of Months excess returns 3 =SUM(F20:F31)
Total No. of Months 12 Given
Batting Average 25.00% =L26/L27