In: Finance
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:
Portfolio | Rp | σp | βp | ||
X | 12.5 | % | 38 | % | 1.45 |
Y | 11.5 | 33 | 1.15 | ||
Z | 9.4 | 23 | .80 | ||
Market | 11.9 | 28 | 1.00 | ||
Risk-free | 6.2 | 0 | 0 | ||
What are the Sharpe ratio, Treynor ratio, and Jensen’s alpha for each portfolio? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your ratio answers to 5 decimal places. Enter your alpha answers as a percent rounded to 2 decimal places.)
Required Return of X =Risk Free Rate+Beta*(Market Return-Risk
Free Rate) =6.2%+1.15*(11.9%-6.2%) =14.465%
Sharpe Ratio of X=(Expected Return-Risk Free)/Standard Deviation
=(12.5%-6.2%)/38% =0.16579
Treynor ratio of X=(Expected Return-Risk Free)/Beta
=(12.5%-6.2%)/1.45 =0.04345
Jensen Alpha of X =Expected Return -Required rate of A
=12.5%-14.465% =-1.97%
Required Return of Y =Risk Free Rate+Beta*(Market Return-Risk Free
Rate) =6.2%+1.45*(11.9%-6.2%) =12.755%
Sharpe Ratio of Y=(Expected Return-Risk Free)/Standard Deviation
=(11.5%-6.2%)/33% =0.16061
Treynor ratio of Y=(Expected Return-Risk Free)/Beta
=(11.5%-6.2%)/1.15 =0.04609
Jensen Alpha of Y =Expected Return -Required rate of A
=11.5%-12.755% =-1.26
Required Return of Z =Risk Free Rate+Beta*(Market Return-Risk Free
Rate) =6.2%+0.8*(11.9%-6.2%) =10.76%
Sharpe Ratio of Z=(Expected Return-Risk Free)/Standard Deviation
=(9.4%-6.2%)/23% =0.13913
Treynor ratio of Z=(Expected Return-Risk Free)/Beta
=(9.4%-6.2%)/0.8 =0.04
Jensen Alpha of Z =Expected Return -Required rate of A =9.4%-10.76%
=-1.36%
Required Return of Market =Risk Free Rate+Beta*(Market Return-Risk
Free Rate) =6.2%+1*(11.9%-6.2%) =11.90%
Sharpe Ratio of Market=(Expected Return-Risk Free)/Standard
Deviation =(11.9%-6.2%)/28% =0.20357
Treynor ratio of Market=(Expected Return-Risk Free)/Beta
=(11.9%-6.2%)/1 =0.057
Jensen Alpha of Market =Expected Return -Required rate of A
=11.90%-11.90% =0