Birla Institute of Technology & Science, Pilani

Hyderabad Campus

Semester-I, 2021-22
ECON F412/FIN F313: Security Analysis & Portfolio Management

Problem Set: Portfolio Performance Evaluation

1. Evaluate the relative performance of the following funds using the Sharpe ratio.
A: Risk = 30%, Return = 25%, Beta = 1.2
B: Risk = 18%, Return = 20%, Beta = 1.5
Assume the risk-free rate is 7%. Further, the market has a risk of 15% and return of 18%.

2. For the same two portfolios mentioned above, evaluate the relative performance using the
Treynor ratio. Are the results the same? Why or why not?

3. What is the Jensen’s alpha for a portfolio whose expected return is 18%, beta is 1.5, and
the expected market return is 14%? Also calculate the information ratio for this portfolio,
if the unsystematic risk is 22%. Assume that the risk-free rate is 7%.

4. Suppose you are an investor, looking to invest in one of the following portfolios.
Portfolio 1: Risk 15%, Return 12%, Beta 1.4
Portfolio 2: Risk 25%, Return 22%, Beta 1.1
Assuming that the market return is 18% and its standard deviation is 20%, which portfolio
would you choose, if your preferred performance measure is the M-squared measure? Risk-
free rate = 7%.

5. Consider the following information on investment in three different sectors A, B, and C.

Find the excess returns that can be attributed to security and sectoral allocation,
respectively.

Portfolio Benchmark Portfolio Benchmark

Weight Weight Return Return

Sector A 0.4 0.5 0.24 0.20

Sector B 0.3 0.1 0.18 0.15

Sector C 0.3 0.4 0.30 0.28