FRM Part II · FRM Exam Part II · Portfolio Performance Evaluation
A portfolio earned 14% in a year. Its beta was 1.5, the risk-free rate was 2%, and the market return was 10%. What is the Treynor ratio?
The Treynor ratio is 0.080. It equals the portfolio's excess return of 12 percentage points (14% less 2%) divided by its beta of 1.5, giving 8% of excess return per unit of systematic risk.
- A0.080Correct
- B0.093
- C0.120
- D0.100
Explanation
Treynor = (14% - 2%) / 1.5 = 8% = 0.080. The 0.120 option ignores beta. The 0.093 option divides total return 14% by 1.5. The 0.100 option uses the market's premium divided by beta of 0.8, an unrelated figure.
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