Assets A, B, and the market portfolio (M) all have the same expected return. Their dividend yields as well as the risk free interest rate are 0. Asset A has a Treynor ratio of 20%, Asset B has a Treynor ratio of 5%, while M has a Treynor ratio of 10%. 2. Illustrate the Treynor ratios for assets A, B, and M graphically.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Hello
can you show how to graph this and how i can figure out what the beta is oout of this informatio. There is no expected return, in the second picture i have uploaded is the solutions for it, i guess i just have to assume a expected return which they assumed it to be 10%
Which formula was used to calculate beta? why does it make sense to divide expected return with treynor to get beta?
- This is the whole problem
![PROBLEM 2 (INVESTMENTS]
A US investor considers buying US risky assets. The investor uses the single-index model to describe the
market for risky assets.
1. How do you calculate the alpha and beta for a specific risky asset?
Assets A, B, and the market portfolio (M) all have the same expected return. Their dividend yields as well as
the risk free interest rate are 0. Asset A has a Treynor ratio of 20%, Asset B has a Treynor ratio of 5%, while
M has a Treynor ratio of 10%.
2. Illustrate the Treynor ratios for assets A, B, and M graphically.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fad6d3522-58fe-4a42-a237-8062bf310251%2Fb6131a8e-c0f0-4227-b303-8f28ac1d8585%2Flre6hfk_processed.jpeg&w=3840&q=75)
Step by step
Solved in 4 steps
