NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
Mr. Iyer's portfolio had a return of 12%, a beta of 1.2 and the risk-free rate was 5%. What is the Treynor ratio?
The Treynor ratio is about 0.0583 (5.83%). It is the excess return of 7% (12% minus 5%) divided by the portfolio beta of 1.2, measuring excess return per unit of systematic risk.
- A0.0583Correct
- B0.07
- C0.10
- D0.0417
Explanation
Treynor = (Rp - Rf)/beta = (12 - 5)/1.2 = 5.83 per unit of beta, i.e. 0.0583. 0.07 is the excess return without dividing by beta. 0.10 is 12/1.2, forgetting to subtract the risk-free rate. 0.0417 is 5/1.2, using the risk-free rate alone.
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