Question

MC Qu. 46 The following data are available relating... The following data are available relating to the performance of Seminole Fund and the market portfolio Market SeminolePortfolio 18 Average return Standard deviations of 14 30% 228 returns Beta 1.4 1.0 Residual standard deviation 4.0 0.0 The risk-free return during the sample period was 6 % Calculate the M measure for the Seminole Fund. Multiple Choice 4.0% 200 % 2.86% 0.8% 400 %

Answer 1

M² measure of seminole portfolio = 0.8%

M squared can be computed with following equation:

$M^2 = (R_p-R_f)*\frac{\sigma _m}{\sigma _f}-(R_m-R_f)$

where,

Rp = Portfolio return

Rm = Market return

Rf = risk free rate

Putting the values:

$M^2 = (0.18-0.06)*\frac{0.22}{0.30}-(0.14-0.06)$

$M^2 = (0.12)*0.733333333333333-(0.08)$

$M^2 = 0.088-0.08$

$M^2 = 0.008$

$\bg_green \large M^2 = 0.8\%$

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.