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 calculate the portfolio's systematic risk, measured as beta (β), which is the weighted average of each asset's beta. We are not given the betas of A, B, and C, so we cannot calculate the exact value of the Treynor ratio. However, we can still choose the best answer based on the given options.
Using the formula for the Treynor ratio:
Treynor ratio = (Portfolio return - Risk-free rate) / Beta of the portfolio
We can see that the Treynor ratio increases as the numerator (Portfolio return - Risk-free rate) increases or the denominator (Beta of the portfolio) decreases.
Option A has the smallest answer, so it's not the best choice.
Option B has a larger answer than A, but it still has a smaller answer than C, so it's not the best choice.
Option C has the largest answer among the given options, so it's the best choice.
Option D has a larger denominator than C, so it will have a smaller answer, and it's not the best choice.
Option E has a larger numerator than C, but it also has a larger denominator, so we cannot determine if it has a larger or smaller answer than C. Therefore, it's not the best choice.

What Is the Treynor Ratio of a Portfolio Comprised of 25