NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Modern Portfolio Theory
Ms. Iyer holds a portfolio that earned 12% with a beta of 0.8, while the risk-free rate is 6%. What is the Treynor ratio of her portfolio?
The Treynor ratio is 7.5. It is the excess return over the risk-free rate, 12% minus 6% equals 6%, divided by the portfolio beta of 0.8, which gives 7.5 of excess return per unit of systematic risk.
- A7.5Correct
- B15.0
- C0.75
- D6.0
Explanation
Treynor ratio = (Rp − Rf) / beta = (12 − 6) / 0.8 = 7.5. Multiplying by beta instead of dividing gives 4.8, and dividing the raw return by beta gives 15. The value 6.0 is just the excess return, not adjusted for beta.
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