Problem: Detailed spreadsheet for calculating mutual fund or equity financial performance. Calculates CAGR, Sharpe Ratio, Treynor Ratio, Beta, Jensen's Alpha, Information Ratio, Tracking Error and R-Squared. Uses two hypothetical mutual funds ("Papa" and "Mama") as case study for comparison. Includes references.
When you pick the best choice for your portfolio, defend your decision in a 100 - 200 word essay.
The following return information is given for two mutual funds (Papa and Mama), the market index, and the risk-free rate.
Year Papa Fund Mama Fund Market Risk-Free
2008 -12.6% -22.6 -24.5% 1%
2009 25.4 18.5 19.5 3
2010 8.5 9.2 9.4 2
2011 15.5 8.5 7.6 4
2012 2.6 -1.2 -2.2 2
Calculate the Sharpe ratio, Treynor ratio, Jensen's alpha, information ratio, and R-squared for both funds and determine which is the best choice for a portfolio.