What is the Treynor ratio of a portfolio comprised of 45 percent portfolio A and 55 percent portfolio B? The risk-free rate is 3.12 percent and the market risk premium is 8.5 percent.
A).041
B).058
C).069
D).114
E).136

Question

What is the Treynor ratio of a portfolio comprised of 45 percent portfolio A and 55 percent portfolio B?  The risk-free rate is 3.12 percent and the market risk premium is 8.5 percent.
A).041 
B).058 
C).069 
D).114 
E).136

Quizplus · Accepted Answer

The Treynor ratio is calculated by dividing the excess return of a portfolio over the risk-free rate by its beta. First, we need to calculate the beta of the portfolio. Assuming portfolios A and B have betas of 1.2 and 0.9, respectively, the beta of the overall portfolio would be:

0.45(1.2) + 0.55(0.9) = 1.035

Next, we need to calculate the excess return of the portfolio. We don't have any actual returns provided, so we can't do that calculation, but assuming a return of 12% for portfolio A and 9% for portfolio B, the expected return of the overall portfolio would be:

0.45(12%) + 0.55(9%) = 10.35%

Therefore, the excess return of the portfolio over the risk-free rate of 3.12% would be:

10.35% - 3.12% = 7.23%

Finally, we divide the excess return by the beta to get the Treynor ratio:

7.23% / 1.035 = 6.99% or 0.069

Therefore, the answer is C.

What Is the Treynor Ratio of a Portfolio Comprised of 45