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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance

A scheme gave a return of 14% in a year. The risk-free rate is 6%, the scheme's beta is 0.8 and its standard deviation is 16%. The benchmark returned 12% with a beta of 1. Using the Treynor ratio, what is the value for this scheme (in percentage points of excess return per unit of beta)?

The Treynor ratio is 10.0. Excess return over the risk-free rate is 14 minus 6, which is 8 percentage points, and dividing by the beta of 0.8 gives 10. Using standard deviation instead would give the Sharpe ratio of 0.5.

  1. A10.0Correct
  2. B8.0
  3. C0.5
  4. D17.5

Explanation

Treynor = (14 - 6) / 0.8 = 8 / 0.8 = 10.0. The value 0.5 is the Sharpe ratio (8/16), a mix-up of risk measures. The value 8.0 ignores dividing by beta, and 17.5 divides 14 by 0.8 without subtracting the risk-free rate.

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