) An analyst wants to evaluate portfolio X, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for portfolio X, the market portfolio (as measured by the S&P 500), and US Treasury bills during the past 8 years. Average annual return Standard deviation Beta Portfolio X 10% 15% 0.50 S&P 500 11% 13% 1.00 Т-bills 6% a) Calculate the Treynor and Sharpe measures 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 ratio and the Sharpe ratio. c) Calculate the M² measure for portfolio X and explain its economic meaning using the relevant graph.
) An analyst wants to evaluate portfolio X, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for portfolio X, the market portfolio (as measured by the S&P 500), and US Treasury bills during the past 8 years. Average annual return Standard deviation Beta Portfolio X 10% 15% 0.50 S&P 500 11% 13% 1.00 Т-bills 6% a) Calculate the Treynor and Sharpe measures 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 ratio and the Sharpe ratio. c) Calculate the M² measure for portfolio X and explain its economic meaning using the relevant graph.
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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how to answer c
Transcribed Image Text:1) An analyst wants to evaluate portfolio X, using both the Treynor and Sharpe
measures of portfolio performance. The following table provides the average
annual rate of return for portfolio X, the market portfolio (as measured by the
S&P 500), and US Treasury bills during the past 8 years.
Average annual return
Standard deviation
Beta
Portfolio X
10%
15%
0.50
S&P 500
11%
13%
1.00
T-bills
6%
a) Calculate the Treynor and Sharpe measures 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 ratio and the Sharpe ratio.
c) Calculate the M2 measure for portfolio X and explain its economic
meaning using the relevant graph.
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