Question

During the year just​ ended, Anna​ Schultz's portfolio, which has a beta of 0.96​, earned a...

During the year just​ ended, Anna​ Schultz's portfolio, which has a beta of 0.96​, earned a return of 8.1%. The​ risk-free rate is currently 3.6%​, and the return on the market portfolio during the year just ended was 9.4%.

a.  Calculate​ Treynor's measure for​ Anna's portfolio for the year just ended.

b.  Compare the performance of​ Anna's portfolio found in part a to that of Stacey​ Quant's portfolio, which has a​ Treynor's measure of 1.37%. Which portfolio performed​ better? Explain.

c.  Calculate​ Treynor's measure for the market portfolio for the year just ended.

d.  Use your findings in parts a and c to discuss the performance of​ Anna's portfolio relative to the market during the year just ended.

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Homework Answers

Answer #1

a. Treynor Ratio = (Portfolio Return - Risk Free Rate)/Beta Portfolio = (9.4%-3.6%)/0.96 = 6.04%

b. Anna' Portfolio performance is better than Stacey Quant's Portfolio because treynor ratio is higher . Higher the treynor ratio more is the excess return for unit risk.

c. Treynor Ratio for Market - (Portfolio Return - Risk Free Rate)/Beta Market = (8.1%-3.6%)/1 = 4.5%

d. Anna's portfolio relative to market is better because Anna ' Treynor ratio is higher than market treynor's ratio.

Please Discuss in case of Doubt

Best of Luck. God Bless
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