Question

Assume that last year, T-bills and the market yielded 2% and 10% respectively. Bill earned 10% on a portfolio with a beta of 0.9, while Mary earned 12% on a portfolio with a beta of 1.5. Their respective Treynor scores were.

		8.89 and 6.67
		9 and 10.5
		9.1 and 12
		8.7 and 12.1.

Mary beat the market on a risk adjusted basis.

		TRUE
		FALSE.

Bill beat the market on a risk adjusted basis.

		TRUE
		FALSE.

Answer 1

1.

Treynor Ratio = (r_p - r_f)/Beta

Treynor Ratio of Bill = (10 - 2)/0.90

Treynor Ratio of Bill = 8.89

Treynor Ratio of Mary = (12 - 2)/1.50

Treynor Ratio of Mary = 6.67

2.

Treynor Ratio of Market Portfolio = (10 - 2)/1

Treynor Ratio of Market Portfolio = 8

Mary beat the market on a risk adjusted basis.

False

Explanation:

Treynor Ratio for Mary is 6.67 and for Market Portfolio is 8, so Mary's portfolio has lower risk adjusted return.

Bill beat the market on a risk adjusted basis.

True

Explanation:

Treynor Ratio for Bill is 8.89 and for Market Portfolio is 8, so Bill's portfolio has higher risk adjusted return.

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