NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
A PMS portfolio returned 15% in a year. The risk-free rate is 6%, the portfolio's standard deviation is 12% and its beta is 1.5. The market return is 11%. What are its Sharpe ratio and Treynor ratio (as a percentage per unit of beta) respectively?
The Sharpe ratio is 0.75 and the Treynor ratio is 6. Excess return over the risk-free rate is 9%. Dividing by the standard deviation of 12% gives 0.75, and dividing by the beta of 1.5 gives 6.
- A0.75 and 6Correct
- B1.25 and 10
- C0.75 and 10
- D1.25 and 6
Explanation
Excess return = 15 - 6 = 9%. Sharpe = 9/12 = 0.75. Treynor = 9/1.5 = 6. Using the market premium of 5% instead of 9% or dividing by the wrong risk measure gives the other pairings, which are wrong. Check: 0.75 x 12 = 9 and 6 x 1.5 = 9.
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