CMA Final · Strategic Financial Management · Mutual Funds
A fund with NAV Rs 20 at the start had a year-end NAV of Rs 23 with a Rs 1 dividend. Its return was 20%. Over the same year the risk-free rate was 8%, the fund's standard deviation was 12% and its beta was 0.8. Fund return here is 20%. What are the Sharpe and Treynor ratios?
Sharpe is 1.00 and Treynor is 15.00. The fund's excess return over the risk-free rate is 12 percentage points. Dividing by total risk, standard deviation 12, gives Sharpe 1.00; dividing by systematic risk, beta 0.8, gives Treynor 15.
- ASharpe 1.00; Treynor 15.00Correct
- BSharpe 1.50; Treynor 15.00
- CSharpe 1.00; Treynor 12.00
- DSharpe 1.50; Treynor 12.00
Explanation
Excess return = 20 - 8 = 12. Sharpe = 12/12 = 1.00. Treynor = 12/0.8 = 15.00. Data check: (23-20+1)/20 = 20%. Using beta in the Sharpe denominator or SD in Treynor gives the other options.
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