Question

In: Finance

The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07....

The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07.

Portfolio Return Beta σi

P 0.17 1.00 0.06

Q 0.19 1.10 0.07

R 0.11 0.70 0.04

S 0.23 1.30 0.10

Market 0.14 1.00 0.05

Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places.

Portfolio Sharpe measure

P __________

Q __________

R __________

S __________

Market

Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places.

Portfolio Treynor measure

P __________

Q __________

R __________

S __________

Market

Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.

Portfolio Rank (Sharpe measure) Rank (Treynor measure)

P ____ ____

Q ____ ____

R ____ ____

S ____ ____

Market ____ ____

Solutions

Expert Solution

(A) Computation of Sharpe measure

Sharpe measure = (Return - Risk free return) / Standard deviation

portfolio	calculation	sharpe measure
P	(0.17-.007) / 0.6	1.667
Q	(0.19 - 0.07) / 0.07	1.7143
R	(0.11 - 0.07) / 0.04	1.000
S	(0.23 - 0.07 ) /0.10	1.600
Market	(0.14 - .07 ) / 0.05	1.400

(B) Computation of Treynor measure

Treynor's measure = (Return - Risk free return) / Beta

portfolio	calculation	Treynor measure
P	(0.17-.007) / 1.00	0.100
Q	(0.19 - 0.07) / 1.10	0.109
R	(0.11 - 0.07) / 0.70	0.057
S	(0.23 - 0.07 ) / 1.30	0.123
Market	(0.14 - .07 ) / 1.00	0.070

portfolio	sharpe measure	Rank
P	1.667	2
Q	1.7143	1
R	1.000	5
S	1.600	3
Market	1.400	4

portfolio	Treynor measure	Rank
P	0.100	3
Q	0.109	2
R	0.057	5
S	0.123	1
Market	0.070	4

As per sharpe measure best portfolio is Q and as per treynor measure best portfolio is S.

jeff jeffy answered 1 year ago

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