- 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

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**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 / σ

_{M}= 0.5 x 0.9 / 0.2 = 2.25

(18% - 5%) / 2.25 = 0.058

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**User Contributed Comments**
2

User |
Comment |
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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 |