An analyst wants to evaluate Portfolio X consisting entirely of US common stocks, using both the Treynor and Sharpe measures of the portfolio performance. The following table provides the average annual rate of return for the portfolio X the market portfolio (as measured by the Standard & Poor's 500 index) and US Treasury billds (Tbills) during the past eight years Average Return Standard deviation Beta Portfolio X 10% 18% 0.6 S & P 500 12% 13% 1 T bills 6% n/a n/a a. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Briefly explain whether portfolio X underperformed, equalled, or outperformed the S&P 500 on a risk-adjusted basis using both the Treynor measure and the Sharpe measure. b. Based on the performance of Portfolio X relative to the S&P 500 calculated in part a, briefly explain the reason for the conflicting results when using the Treynor measure versus the Sharpe measure.
An analyst wants to evaluate Portfolio X consisting entirely of US common stocks, using both the Treynor and Sharpe measures of the portfolio performance. The following table provides the average annual rate of return for the portfolio X the market portfolio (as measured by the Standard & Poor's 500 index) and US Treasury billds (Tbills) during the past eight years Average Return Standard deviation Beta Portfolio X 10% 18% 0.6 S & P 500 12% 13% 1 T bills 6% n/a n/a a. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Briefly explain whether portfolio X underperformed, equalled, or outperformed the S&P 500 on a risk-adjusted basis using both the Treynor measure and the Sharpe measure. b. Based on the performance of Portfolio X relative to the S&P 500 calculated in part a, briefly explain the reason for the conflicting results when using the Treynor measure versus the Sharpe measure.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
| An analyst wants to evaluate Portfolio X consisting entirely of US common stocks, using both the Treynor and Sharpe measures of the portfolio performance. The following table provides the average annual |
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| (as measured by the Standard & Poor's 500 index) and US Treasury billds (Tbills) during the past eight years | ||||||||||||||||
| Average Return | Standard deviation | Beta | ||||||||||||||
| Portfolio X | 10% | 18% | 0.6 | |||||||||||||
| S & P 500 | 12% | 13% | 1 | |||||||||||||
| T bills | 6% | n/a | n/a | |||||||||||||
| a. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Briefly explain whether portfolio X underperformed, equalled, or outperformed the S&P 500 on a risk-adjusted basis using both the Treynor measure and the Sharpe measure. | ||||||||||||||||
| b. Based on the performance of Portfolio X relative to the S&P 500 calculated in part a, briefly explain the reason for the conflicting results when using the Treynor measure versus the Sharpe measure. | ||||||||||||||||
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