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Investment companies and performanceevaluation

1) Consider two different hedge funds with the followingdata related to performance:

Hedge fund Alpha Beta

Fund A   5% 1.6

Fund B   3% 0.8

Assuming that beta is consistent with the type ofinvesting we expected in both cases, which fund performedbetter.
A. Fund A, because it had the higher return
B. Fund A, because it had the higher alpha
C. Fund B, because its alpha is more impressive than Fund A when weconsider how much less risk the fund took.
D. Fund B, because the beta is closer to 1.

2) When we analyze the performance of an activelymanaged mutual fund we find that the fund generated a beta of 1 andan alpha of zero.

A. this result shows that the manager took no risk wheninvesting

B. this result shows that the manager did not add anyvalue to performance with his/her decision-making

C. both (A) and (B) are true

D. none of the above

3) Consider two different hedge funds with the followingdata related to performance:

Hedge fund Alpha Beta

Fund A   1% 0.8

Fund B   3% -0.3
Assuming that beta is consistent with the type of investing weexpected in both cases, which fund performed better?

A. Fund A, because Fund B should have negative alpha tomatch its negative beta
B. Fund A, because it had a higher beta than Fund B
C. Fund B, because its alpha is higher than Fund A.
D. Fund A, because the beta is closer to 1.

4) A positive alpha for a mutual fundmeans:

A. the fund invested in high-riskstrategies

B. the fund manager’s performance was bad

C. both (A) and (B)

D. none of the above