You Want to Evaluate Three Mutual Funds Using the Sharpe

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 5%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. $\begin{array}{c}\begin{array}{lll}\text { } \\\text { } \\\text { } \\\text { Fund A } \\\text { Fund B } \\\text { Fund C } \\\text { S\&P 500 } \\\end{array}\begin{array}{lll}\text { } \\\text { Average } \\\text {Return } \\23\% \\20\% \\19\% \\18\%\end{array}\begin{array}{lll}\text {Regidual}\\\text { Standand } \\\text { Deviation.} \\\text {30\% } \\\text {19\% } \\\text { 17\% } \\15\%\end{array}\begin{array}{lll}\text { } \\\text { } \\\text {Beta } \\\text { 1.3 } \\\text { 1.2 } \\\text { 1.1 } \\1.0\end{array}\end{array}$
The investment with the highest Sharpe measure is

A) Fund A.
B) Fund B.
C) Fund C.
D) Funds A and B (tied for highest) .
E) Funds A and C (tied for highest) .

Correct Answer:

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