NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
In performance measurement, the Treynor ratio of a portfolio is calculated as the excess return over the risk-free rate divided by which measure?
The Treynor ratio divides the portfolio's excess return over the risk-free rate by its beta. It therefore measures reward per unit of systematic risk, unlike the Sharpe ratio, which uses total risk measured by standard deviation.
- AStandard deviation of portfolio returns
- BBeta of the portfolioCorrect
- CTracking error of the portfolio
- DDownside deviation of the portfolio
Explanation
Treynor ratio = (Portfolio return - Risk-free return) / Beta. It uses systematic risk only. Standard deviation is the denominator for the Sharpe ratio, so that option is wrong.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Performance Measurement and Evaluation shows your real accuracy, how long you take and where you lose marks.
More Portfolio Performance Measurement and Evaluation questions
- A portfolio earned 20% in year 1 and lost 10% in year 2. What is its compound annual growth rate (CAGR) over the two years, closest to?
- A portfolio earned 18% in a year with a beta of 1.2. The risk-free rate was 7% and the market return was 15%. What is Jensen's alpha for the…
- A portfolio returned 12% with a beta of 0.9. The risk-free rate is 6% and the market return is 11%. What is Jensen's alpha?
- Mr. Iyer invested Rs 1,00,000 in a fund. After one year the value was Rs 1,20,000, and he then added Rs 40,000 at that point. After a second…
- Portfolio A earned 15% with a beta of 1.2. The risk-free rate was 7%. What is the Treynor ratio of Portfolio A, expressed in percentage poin…
- Mr. Iyer invested Rs 1,00,000 in a mutual fund. At the end of year 1 it was worth Rs 1,20,000. He then added Rs 30,000, and at the end of ye…