1. (30 points) The following table presents sample data for Bluewater (BW), a hedge fund. (Abstract from potential biase

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1 30 Points The Following Table Presents Sample Data For Bluewater Bw A Hedge Fund Abstract From Potential Biase 1 (98.43 KiB) Viewed 15 times

1. (30 points) The following table presents sample data for Bluewater (BW), a hedge fund. (Abstract from potential biases in the data.) Month 1 Month 2 Return for BW -0.95% -0.4% Risk-free return 0.18% 0.18% Total market return 0.19% -0.9% Table 1: Data for BW Hedge Fund (a) Calculate annualized arithmetic and geometric average returns for BW. From the perspective of an investor in a hedge fund, discuss when each type of average return calculation is appropriate. (b) Suppose the annualized standard deviation of BW's excess returns is 3.15%. Cal- culate and interpret the annualized Sharpe Ratio (use the geometric average) for BW. (c) On regressing BW's monthly excess returns on the current market portfolio, you REW - Rf = 0.87% +0.25(R - Rj) + Et, find with o(e) = 2.74%. What is the monthly information ratio? Interpret this ratio. (d) You find out that BW's accounts do not necessarily reflect current prices of assets. Discuss how you will adjust the information ratio in response to stale prices.