Question

stock has a standard deviation of daily returns of 1,23% It wants to determine the lower boundary, the 5% Value at risk that is based on 1.65 standard deviations from the expected outcome. The stock's expected daily return is 0.3%. Calculate the lower boundary? Interpret the meanings of the results? Show your work 13. (20 points). A stock's average return is beta is 1.5 deviation of the stock's return is 4 perc a) What is the Treynor index for the stock (Show your work)? ent, and the stock Explain the meaning of this calculated Treynor index? b) What is the Sharpe index of the stock (Show your work)? Explain the meaning of this calculated Sharpe index?

Answer 1

Given,

R_a= 10%, stock's average return

Rf= 4%, risk-free rate

$\sigma$s= 4%, standard deviation of stock

$\beta$= 1.5

Solution:

a) Treynor index= (R_a- R_f) / $\beta$

= (10-4)/ 1.5

=4

Meaning: It means that the stock gave four units of return for every additional unit of market risk assumed.

b) Sharpe index= (R_a- R_f) / $\sigma$s

=(0.10- 0.04)/ 0.04

=1.5

Meaning: It means the stock generates 1.5% extra return on every 1% of additional annual volatility.