CMA Final · Strategic Financial Management · Portfolio Performance Evaluation and Portfolio Revision
A fund earned 15% with a beta of 1.25. The risk-free rate is 7%. What is the Treynor ratio, in percentage points of excess return per unit of beta?
The Treynor ratio is 6.4. It is the excess return of 8% (15% minus 7%) divided by the systematic risk, beta of 1.25. This gives return earned per unit of market risk, unlike Sharpe, which uses total risk.
- A6.4Correct
- B8.0
- C12.0
- D5.6
Explanation
Treynor ratio = (Rp - Rf) / beta = (15 - 7) / 1.25 = 6.4. Option 8.0 ignores beta, and 12.0 divides by 0.67 by mistake. Option 5.6 uses a wrong numerator of 7.
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