Fred's Frankfurters has an expected return of 18.9%.The market has an expected return of 13.5%.If the risk free rate is 5%,calculate the Treynor Index.(Round to two decimal places)
A) 13.90%
B) 5.40%
C) 5.18%
D) 8.48%
E) 7.50%

Question

Quizplus · Accepted Answer

Step 1 - Calculate the beta for Fred's Frankfurters. E(k_i) = k_F + β_i[E(k_M) - k_F] β_i = 11ea7fdb_fc0c_95d1_a768_97a286d37c62_TB2902_11 β_i = 11ea7fdb_fc0c_95d2_a768_838bf197aa5c_TB2902_11 = 11ea7fdb_fc0c_95d3_a768_056becd7b0bf_TB2902_11 = 1.64 Step 2 - Use the beta to compute the Treynor Index. Treynor Index = 11ea7fdb_fc0c_95d4_a768_7ffb40f0ac9d_TB2902_11 Treynor Index = 11ea7fdb_fc0c_95d5_a768_57319a562f21_TB2902_11 = 0.0848

Fred's Frankfurters Has an Expected Return of 18