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Financial Performance Metrics: Detailed Spreadsheet

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.

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Please find the attached spreadsheet for calculations, and attached Word document for more effective formatting.

The Papa fund is superior by all measures to Mama fund. Beginning with a comparison of the compound annual growth rate (CAGR) of both funds as compared to both the market index and the risk-free rate. CAGR is superior to a simple average of returns due to the compounding nature of returns over time. Papa returned a 7.1% CAGR over the time period considered, compared to Mama's 1.4% return. While both beat the market's 0.8%, only Papa did better than the 2.4% risk-free return. The other measures all confirm that Papa's fund is managed more effectively, and offers a higher risk-adjusted return than the Mama fund. ...

Solution Summary

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. APA format, includes references.

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