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The following portfolios are b

Author:
January 18th, 2023
The following portfolios are being considered for investment.During the period under consideration, RFR = 0.07.
Portfolio Return Beta σi
P 0.17 1.00 0.06
Q 0.19 1.10 0.07
R 0.11 0.70 0.04
S 0.23 1.30 0.10
Market 0.14 1.00 0.05
Compute the Sharpe measure for each portfolio and the marketportfolio. Round your answers to three decimal places.
Portfolio Sharpe measure
P __________
Q __________
R __________
S __________
Market
Compute the Treynor measure for each portfolio and the marketportfolio. Round your answers to three decimal places.
Portfolio Treynor measure
P __________
Q __________
R __________
S __________
Market
Rank the portfolios using each measure, explaining the causefor any differences you find in the rankings.
Portfolio Rank (Sharpe measure) Rank (Treynor measure)
P ____ ____
Q ____ ____
R ____ ____
S ____ ____
Market ____ ____

Answer:

(A) Computation of Sharpe measure

Sharpe measure = (Return – Risk free return) / Standarddeviation

portfolio calculation    sharpe measure
P (0.17-.007) / 0.6 1.667
Q (0.19 – 0.07) / 0.07 1.7143
R (0.11 – 0.07) / 0.04 1.000
S (0.23 – 0.07 ) /0.10 1.600
Market (0.14 – .07 ) / 0.05 1.400

(B) Computation of Treynor measure

Treynor’s measure = (Return – Risk free return) / Beta

portfolio calculation    Treynor measure
P (0.17-.007) / 1.00 0.100
Q (0.19 – 0.07) / 1.10 0.109
R (0.11 – 0.07) / 0.70 0.057
S (0.23 – 0.07 ) / 1.30 0.123
Market (0.14 – .07 ) / 1.00 0.070

(C) Ranking of both measure

portfolio sharpe measure Rank
P 1.667 2
Q 1.7143 1
R 1.000 5
S 1.600 3
Market 1.400 4
portfolio Treynor measure Rank
P 0.100 3
Q 0.109 2
R 0.057 5
S 0.123 1
Market 0.070 4

As per sharpe measure best portfolio is Q and as per treynormeasure best portfolio is S.

 
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