CFA Practice Question

There are 294 practice questions for this study session.

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
You need to log in first to add your comment.