Question

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A, 25 percent portfolio B, and The risk-free rate is 2.5 percent and the market risk premium is 8.4 percent.

Asset	Weight		Avg Return		Std Dev		Beta
A	40	%	15.30	%	17.20	%	1.25
B	25	%	10.50	%	9.80	%	1.3
C	35	%	13.30	%	14.10	%	0.95

Group of answer choices

0.094

0.057

0.081

0.076

0.063

Answer 1

treynor ratio = (portfolio return - risk free rate) / portfolio beta

portfolio return = (weight of A * avg return of A) + (weight of B * avg return of B) + (weight of C * avg return of C)

portfolio return = (40% * 15.30%) + (25% * 10.5%) + (35% * 13.30%) = 13.40%

portfolio beta = (weight of A * beta of A) + (weight of B * beta of B) + (weight of C * beta of C)

portfolio return = (40% * 1.25) + (25% * 1.3) + (35% * 0.95) = 1.1575

treynor ratio = (portfolio return - risk free rate) / portfolio beta

treynor ratio = (13.40% - 2.5%) / 1.1575

treynor ratio = 0.094