Your brother-in-law, Bil, fancies himself quite an investor, and he knows your sister, Hermana, also has “a bit of an interest in the markets.” So, he wants you to settle a dispute between them as to who is the better “market player.” Your research into their online brokerage trades has turned up the following performance information:   Benchmark Portfolio Bil’s Portfolio Hermana’s Portfolio   Weight Return   Weight Return   Weight Return Stocks 0.6 -5.00% Stocks 0.5 -4.00% Stocks 0.3 -5.00% Bonds 0.3 3.50% Bonds 0.2 2.50% Bonds 0.4 3.50% T-Bills 0.1 1.00% Cash 0.3 1.00% Cash 0.3 1.00%   The risk-free rate is 1% and the standard deviation for the Benchmark portfolio is 3.50%, Bil’s portfolio is 5.00%, and Hermana’s portfolio is 3.00%. Compare Bil and Hermana’s performance relative to the benchmark in terms of portfolio returns. d. Using the Sharpe Index, determine which relative is performing better than the market on a risk adjusted basis.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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INV4 5d

Your brother-in-law, Bil, fancies himself quite an investor, and he knows your sister, Hermana, also has “a bit of an interest in the markets.” So, he wants you to settle a dispute between them as to who is the better “market player.”

Your research into their online brokerage trades has turned up the following performance information:

 

Benchmark Portfolio

Bil’s Portfolio

Hermana’s Portfolio

 

Weight

Return

 

Weight

Return

 

Weight

Return

Stocks

0.6

-5.00%

Stocks

0.5

-4.00%

Stocks

0.3

-5.00%

Bonds

0.3

3.50%

Bonds

0.2

2.50%

Bonds

0.4

3.50%

T-Bills

0.1

1.00%

Cash

0.3

1.00%

Cash

0.3

1.00%

 

The risk-free rate is 1% and the standard deviation for the Benchmark portfolio is 3.50%, Bil’s portfolio is 5.00%, and Hermana’s portfolio is 3.00%.

Compare Bil and Hermana’s performance relative to the benchmark in terms of portfolio returns.

d. Using the Sharpe Index, determine which relative is performing better than the market on a risk adjusted basis.

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