Suppose two portfolios have the same average return and the same standard deviation of returns, but Roll Tide Fund has a lower beta than Arc Fund. According to the Treynor measure, the performance of Roll Tide Fund
A) is better than the performance of Arc Fund.
B) is the same as the performance of Arc Fund.
C) is poorer than the performance of Arc Fund.
D) cannot be measured as there are no data on the alpha of the portfolio.

Question

Quizplus · Accepted Answer

The Treynor measure evaluates the returns earned in excess of the risk-free rate per unit of market risk (beta). Since Roll Tide Fund has a lower beta than Arc Fund, it means Roll Tide Fund is taking on less market risk for the same level of return, thus indicating a better performance according to the Treynor measure.

Suppose Two Portfolios Have the Same Average Return and the Same