Question

Given the following data, what is the expected return of stock B? Treynor std. dev. beta...

Given the following data, what is the expected return of stock B?

Treynor std. dev. beta risk-free

stock 0.212 18% 0.79 2.5%

a. 3.16%

b. 6.32%

c. 9.48%

d. 12.64%

e. 19.25%

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Answer #1

e. 19.25%

Treynor's ratio = (Expected return of stock - Risk free rate)/beta
0.212 = (Expected return of stock - 0.025)/0.79
0.16748 = Expected return of stock - 0.025
Expected return of stock = 19.25%
Treynor's ratio show the return earned in excess of risk free return for each unit of risk which is "beta" in this case.
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