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Jensen's Alpha and Sharpe Ratio

Using the spreadsheet document labeled Soundsleep Funds Data, generate the Jensen's alpha and Sharpe ratio for each fund. Next, create two sets of rankings-one based on each of these measures. Note that an example, as seen in the Fast Track Growth Fund Update, has been included for your review. This should assist you with your calculations and presentation.

After you have completed your calculations, write a memo (300 words or less) to Denise summarizing your fund analysis. The memo should include the following:

An interpretation of your findings and a comparison of the rankings in this step with the results from your rankings from Soundsleep Task 1
Comments about the performance of any fund that surprised you
A discussion of why the rankings you arrived at in your memo from Soundsleep Task 1 are different from the rankings you just created
An observation of how your ranking did or did not take into consideration the different objectives of each fund

Soundsleep Funds Data Economic Data

Date Fast Track Growth Fund Wallflower Value Fund Mega Multinational Fund Einstein SciFund Soundsleep S&P 500 Index Fund Market US Treasury Rate


Solution Preview

The calculations are in the attached file.

I am explaining the details below, you can write a memo based on it.

The Sharpe ratio measures the excess return per unit of risk. The excess return is the difference between the actual return and the risk free rate (treasury rate) and the standard deviation is the measure of risk. The excess returns are divided by the fund standard deviation to calculate this ratio. The Jensen's Alpha measures if the actual results are in line with the expected returns as calculated using the CAPM. In Sharpe ratio, the higher the ...

Solution Summary

The solution explains the calculation of Jensen's Alpha and Sharpe Ratio