- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 53. Portfolio Risk and Return: Part II
- Subject 4. Applications of the CAPM
CFA Practice Question
Assume the risk-free rate is 5%. The expected return on the market portfolio is 12% and its standard deviation is 20%. A company has an expected return of 18%, a standard deviation of 90%, and a correlation of 0.5 with the market. What is the company's Treynor ratio?
A. 0.047
B. 0.058
C. 0.087
Explanation: β = ρ σi / σM = 0.5 x 0.9 / 0.2 = 2.25
(18% - 5%) / 2.25 = 0.058
User Contributed Comments 2
| User | Comment |
|---|---|
| ryanp1 | i get this answer, but does anyone know why would it be wrong to find beta using capm here? |
| Slav | I found beta, this way. 1. Cov = 0.5*0.2*0.9= 0.09 2. b=0.09/0.2^2=2.25 |