Question

Investors can use certain metrics to acess a stock or stock portfolio’s risk. One of them...

Investors can use certain metrics to acess a stock or stock portfolio’s risk.

One of them is the Treynor ratio.

What is the ratio and what is unique in its measurement?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Treynor ratio measures the excess return generated per unit of systematic risk.

Treynor Ratio = (Portfolio return - Risk Free Rate)/Portfolio Beta

The amount invested in a stock could have been invested in Treasury Bills yielding risk free return,but since the amount has been invested in a portfolio which has risk attached to it, it must provide higher return than the treasury bills.

Hence, this ratio measures how much excess return has been generated per unit of systematic risk taken i.e. Beta

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
11. What are the two main reasons using Standard Deviation to quantify a portfolio’s risk can...
11. What are the two main reasons using Standard Deviation to quantify a portfolio’s risk can be misleading or worse?
Investors can reduce risk by holding more than one asset in a portfolio. True or False?
Investors can reduce risk by holding more than one asset in a portfolio. True or False?
True or False Investors often evaluate their investment options by comparing them to the risk free...
True or False Investors often evaluate their investment options by comparing them to the risk free rate of return offered by US Treasury securities (this rate is considered to be the risk free rate of return due to the low probability that the US Government would not meet its debt obligations). The interest rates on various maturities of these securities are plotted on a graph - called a yield curve. The normal shape of the US Treasury securities yield curve...
Suppose investors can either borrow (to buy stocks on margin) or lend at the risk-free rate...
Suppose investors can either borrow (to buy stocks on margin) or lend at the risk-free rate of rf = 0.02. The only other investment opportunity is a stock fund with E(r) = 0.089 and σ = 0.139. Investors have the usual utility function U = E(r) - (1/2)Aσ2. Investors with risk aversion coefficients A less than _____ should buy the stock fund on margin. Select one: a. 4.58 b. 4.35 c. 3.91 d. 3.57 e. 4.13
3c. How can the risk of an asset be different when the asset is held by...
3c. How can the risk of an asset be different when the asset is held by itself versus when it is held as a part of a group, or portfolio, of assets? (page 275 and critical thinking) 6b. Calculate the coefficient of variation for a stock with the following information. (page 281) Average return 14.4% Standard Deviation 12.52% Coefficient of variation                         0.87 (Solution: 0.87) 6c. If the coefficient of variation for another stock is 0.61, which stock would be...
What is an ESO (Employee Stock Option)? Describe one reason corporations use them.
What is an ESO (Employee Stock Option)? Describe one reason corporations use them.
Consider the two empirical models for excess returns (Ri-Rf) of stocks A and B. The risk...
Consider the two empirical models for excess returns (Ri-Rf) of stocks A and B. The risk free rate (Rf) over the period was 6%, and the market’s average return (Rm) was 14%. Stock A Stock B Estimated market models Ri-Rf= 1% + 1.2(Rm – Rf) Ri-Rf = 2% + 0.8(Rm – Rf) Standard deviation of excess returns 21.6% 24.9% Find the following for each stock: Alpha Sharpe ratio Treynor ratio b) Based on your answers to part a), which stock...
You are considering investing in one of two stocks. Stock A has a higher Sharpe ratio...
You are considering investing in one of two stocks. Stock A has a higher Sharpe ratio than Stock B, but Stock B has a higher Treynor ratio than Stock A. What is the difference between the two ratios? Under what circumstances would you choose Stock A and under what circumstances would you choose Stock B?
The price that investors are willing to pay for a firm's securities can best be described...
The price that investors are willing to pay for a firm's securities can best be described by which of the following statements? a. If a company is performing poorly, investors will not buy that company's securities. b. If a company is performing well, investors will buy the company's stock at almost any price because the price of the stock should increase. c. Since the value of a company's securities depends largely on future cash flows, investors will consider the company's...
Given 12 balls, one and only one of them has different weight. With a balance, how...
Given 12 balls, one and only one of them has different weight. With a balance, how to use fewest measures to make sure to find out the different one? Hint: for the first measurement, one can calculate the information content and entropy of all possibilities and choose the measurement method with maximal entropy. Then the second measurement, etc. Please answer the question by information entropy method
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT