What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A,35 percent portfolio B,and 40 percent portfolio C? The risk-free rate is 3.6 percent and the market risk premium is 8.2 percent.
A).054
B).062
C).070
D).081
E).102

Question

What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A,35 percent portfolio B,and 40 percent portfolio C?  The risk-free rate is 3.6 percent and the market risk premium is 8.2 percent.
A).054 
B).062 
C).070 
D).081 
E).102

Quizplus · Accepted Answer

To calculate the Treynor ratio, we need to first calculate the portfolio beta using the weightage of each portfolio and their respective betas:
Portfolio beta = (0.25 x 1.2) + (0.35 x 0.9) + (0.4 x 1.5) = 1.17
Treynor ratio = (Portfolio return - Risk-free rate) / Portfolio beta
As we do not have any information on the portfolio returns, we cannot calculate the Treynor ratio directly. Therefore, we need to choose the answer that has the highest Treynor ratio based on the given information. Option C has the highest value of beta, which will result in a higher Treynor ratio compared to the other options. Hence, the best choice is C.

What Is the Treynor Ratio of a Portfolio Comprised of 25