CMA Final · Strategic Financial Management · Portfolio Performance Evaluation and Portfolio Revision
A portfolio manager at a Mumbai asset management company earned a return of 14% in a year. The risk-free rate was 6% and the portfolio beta was 1.6. What is the Treynor ratio of the portfolio, expressed in percentage points of excess return per unit of beta?
The Treynor ratio is 5.00. It equals the portfolio's excess return over the risk-free rate, 14% minus 6% = 8%, divided by systematic risk measured by beta of 1.6. This gives 8 divided by 1.6, or 5 percentage points of excess return per unit of beta.
- A5.00Correct
- B8.00
- C8.75
- D3.75
Explanation
Treynor ratio = (Rp - Rf) / beta = (14 - 6) / 1.6 = 8 / 1.6 = 5.00. Option 8.00 is the excess return without dividing by beta. Option 8.75 divides the total return (14) by beta instead of the excess return.
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