An investor would like to evaluate the performance of her portfolio using the Treynor ratio.The past year realised return and systematic risk of the portfolio,the benchmark portfolio,given by the S&P/ASX share price index,and government bonds are:
Has the portfolio:
A)underperformed relative to the benchmark.
B)outperformed the market benchmark on a risk-adjusted basis.
C)underperformed the market benchmark on a risk-adjusted basis.
D)outperformed the Government Bonds.

Question

An investor would like to evaluate the performance of her portfolio using the Treynor ratio.The past year realised return and systematic risk of the portfolio,the benchmark portfolio,given by the S&P/ASX share price index,and government bonds are: 
Has the portfolio:
A)underperformed relative to the benchmark. 
B)outperformed the market benchmark on a risk-adjusted basis. 
C)underperformed the market benchmark on a risk-adjusted basis. 
D)outperformed the Government Bonds.

Quizplus · Accepted Answer

The Treynor ratio is calculated as the excess return of the portfolio over the risk-free rate (in this case, government bonds) divided by the portfolio's beta. The portfolio's Treynor ratio is (18% - 4%)/(1.2) = 10%. The benchmark's Treynor ratio is (12% - 4%)/(1) = 8%. Since the portfolio's Treynor ratio is higher than the benchmark's, the portfolio has outperformed the market benchmark on a risk-adjusted basis.

An Investor Would Like to Evaluate the Performance of Her