Suppose two portfolios have the same average return,the same standard deviation of returns,but portfolio A has a higher beta than portfolio B.According to the Treynor measure,the performance of portfolio A __________.
A)is better than the performance of portfolio B
B)is the same as the performance of portfolio B
C)is poorer than the performance of portfolio B
D)cannot be measured as there is no data on the alpha of the portfolio
E)none of the above is true.

Question

Quizplus · Accepted Answer

The Treynor measure is calculated by dividing the excess return of a portfolio over the risk-free rate by the portfolio's beta. Since both portfolios have the same average return and standard deviation, but portfolio A has a higher beta, it means that portfolio A has taken on more systematic risk than portfolio B. Thus, if both portfolios have the same excess return over the risk-free rate, portfolio B would have a higher Treynor measure as it has a lower beta. Therefore, the performance of portfolio A is poorer than the performance of portfolio B according to the Treynor measure.

Suppose Two Portfolios Have the Same Average Return,the Same Standard