The __________ calculates the reward to risk trade-off by dividing the average portfolio excess return by the portfolio beta.
A) Sharpe measure
B) Treynor measure
C) Jensen measure
D) appraisal ratio

Question

Quizplus · Accepted Answer

The Treynor measure is the calculation of how much excess return is generated for each unit of risk in a portfolio. It is calculated by dividing the excess return of the portfolio (portfolio return minus the risk-free rate of return) by the portfolio's beta. This helps to determine if the returns generated are adequate enough to compensate for the level of risk taken. The Sharpe measure also calculates the trade-off between risk and reward, but it uses standard deviation instead of beta. The Jensen measure and appraisal ratio are not relevant to this calculation.

The __________ Calculates the Reward to Risk Trade-Off by Dividing