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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation

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 points of excess return per unit of beta?

The Treynor ratio is 6.67. It equals the excess return of 8 percentage points (15% less 7%) divided by the beta of 1.2. It measures excess return per unit of systematic risk, not total risk.

  1. A6.67Correct
  2. B12.50
  3. C8.00
  4. D18.00

Explanation

Treynor ratio = (Rp - Rf) / beta = (15 - 7) / 1.2 = 8/1.2 = 6.67. Dividing 15 by 1.2 gives 12.5, which ignores the risk-free rate. Using 8 alone omits the beta division. Multiplying 15 by 1.2 gives 18, which uses the wrong operation.

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