Ranked four ways and then tested for luck, three composite funds disagree about who won in this performance measurement exercise for MT422's eighth unit. Searches like "mt 422 unit 8 assignment example", "mt422 unit 8 sample" and "mt422 unit 8 example" land here.
What a finished MT422 Unit 8 performance measurement exercise looks like
Five pages: a returns table, a measures table and two pages of interpretation. The index averaged 8.80 percent with 14.60 deviation and bills 2.44. A diversified large-cap fund averaged 8.38 with a beta of 0.94 and tracking error of only 1.09, the profile of a near-index portfolio at active prices. A concentrated fund averaged 11.30 at 17.54 deviation and a beta of 1.00. A low-volatility fund averaged 7.50 at 8.83 and a beta of 0.58. Sharpe ratios run 0.573 for the low-volatility fund, 0.505 for the concentrated one and 0.431 for the diversified one, against 0.436 for the index. Treynor gives the concentrated fund 8.84 to the low-volatility fund's 8.71. Alpha is 2.49 for the concentrated fund, with a t-statistic of 0.70.
How a MT422 Unit 8 example is structured
Each measure is defined, computed for all three funds and then read for what it assumes, so the table never stands alone. Sharpe divides excess return by total deviation and suits a fund that will be an investor's whole portfolio. Treynor and Jensen's alpha charge only for beta and suit a fund held beside others. The information ratio compares active return with tracking error against the index. Regressions of excess fund returns on excess index returns supply beta and alpha, and each alpha's standard error is reported beside it. A significance section follows. Neither positive alpha clears a t of 2, and at the concentrated fund's ratio of alpha to residual risk, roughly sixty-seven years of data would be needed to reach that level. The closing section states which question each measure answers and declines to name an overall winner.
Ten years, five series
Three composite funds, the index and bills, with each year's excess return computed before any ratio is attempted.
Total risk or market risk
Sharpe favors the low-volatility fund at 0.573; Treynor narrowly favors the concentrated fund, 8.84 to 8.71.
Alpha and its standard error
2.49 and 1.37 points a year for the two positive funds, with t-statistics of 0.70 and 1.59 printed beside them.
A near-index portfolio exposed
Tracking error of 1.09 and an information ratio of minus 0.38 describe a fund charging for management it barely delivers.
Years needed to tell
At the concentrated fund's appraisal ratio of about 0.24, a t of 2 would take close to sixty-seven years of returns.
Where marks go in MT422 Unit 8
League tables that rank funds on one ratio, or average the ranks across four, miss the unit's central point that each measure answers a different question. Graders check excess returns next: Sharpe and Treynor computed on raw returns, without subtracting the bill rate year by year, overstate every figure. Betas from ten annual points carry wide error, and an alpha reported without its standard error invites a conclusion the data cannot support. The information ratio is frequently computed against the wrong benchmark, or with the fund's deviation in place of tracking error. Credit also goes to interpretation of the near-index fund, whose low tracking error and fees tell their own story. Declaring the concentrated manager skilled on a t-statistic of 0.70 draws comment, since ten years cannot separate that result from chance.
Get a MT422 Unit 8 example written to your instructions
Some sections name real funds and a data source for Unit 8; others supply return series. Either suits a free first MT422 performance exercise, all four measures with their assumptions explained and alpha tested for significance, following the rubric and returned in 24-48h. Spreadsheet formulas can be shown alongside the results.
MT422 Unit 8 questions, answered
Which performance measure is the right one?
It depends on how the fund will be held. For a fund that is the investor's entire portfolio, total risk matters and the Sharpe ratio fits. For one holding among many, only market risk adds to the whole, so Treynor or alpha fit better. The information ratio suits judging a manager against a stated benchmark.
Can real fund returns be used?
Many sections ask for exactly that, with returns drawn from a named data provider over a stated period. Composite funds avoid claims about how any real fund performed. With real data the same cautions apply: cite the provider and dates, compute excess returns year by year and report the uncertainty around each alpha.
What is a t-statistic doing in a performance exercise?
It asks whether an alpha is large relative to the noise around it. A t near 2 or above is the usual threshold for calling a result unlikely to be luck. Ten annual observations rarely get there, and saying so is what separates a careful interpretation from a simple ranking.