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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process

A portfolio earned a return of 16% with a standard deviation of 10%. The risk-free rate is 7%. Portfolio beta is 1.2 and the market return is 13%. What is the Sharpe ratio, and what is Treynor ratio (in percentage points of excess return per unit beta)?

Sharpe ratio is 0.9 and Treynor ratio is 7.5. Excess return over the risk-free rate is 9 percentage points; dividing by the standard deviation of 10 gives Sharpe, and dividing by beta of 1.2 gives Treynor. The market return is not needed for either.

  1. ASharpe 0.9; Treynor 7.5Correct
  2. BSharpe 1.6; Treynor 7.5
  3. CSharpe 0.9; Treynor 13.3
  4. DSharpe 0.6; Treynor 5.0

Explanation

Excess return = 16 - 7 = 9. Sharpe = 9/10 = 0.9. Treynor = 9/1.2 = 7.5. Sharpe 1.6 divides by wrong figures, Treynor 13.3 multiplies by beta instead of dividing, and 0.6/5.0 use market return 13 - 7 = 6 wrongly.

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