Explanation

To solve this problem, we need to:

1. Calculate the Treynor ratio for each asset
2. Check which assets meet the minimum Treynor ratio requirement (≥ 0.1)
3. Among qualifying assets, select the one with the lowest marginal VaR

Step 1: Calculate Treynor Ratio

Treynor Ratio = (Expected Return - Risk Free Rate) / Beta to the Index

• Asset A: (12% - 2%) / 1.2 = 10% / 1.2 = 0.0833
• Asset B: (10% - 2%) / 0.7 = 8% / 0.7 = 0.1143
• Asset C: (10% - 2%) / 0.6 = 8% / 0.6 = 0.1333
• Asset D: (8% - 2%) / 0.3 = 6% / 0.3 = 0.2000

Step 2: Check Treynor Ratio Requirement

Only assets with Treynor ratio ≥ 0.1 qualify:

• Asset A: 0.0833 ❌ (does not meet requirement)
• Asset B: 0.1143 ✅
• Asset C: 0.1333 ✅
• Asset D: 0.2000 ✅

Step 3: Select Asset with Lowest Marginal VaR

Marginal VaR is proportional to the asset's beta to the portfolio. Lower beta to portfolio means lower marginal VaR.

Among qualifying assets:

• Asset B: Beta to portfolio = 0.90
• Asset C: Beta to portfolio = 0.85
• Asset D: Beta to portfolio = 1.10

Asset C has the lowest beta to portfolio (0.85), therefore the lowest marginal VaR among qualifying assets.

Conclusion

Asset C should be selected because:

• It meets the Treynor ratio requirement (0.1333 ≥ 0.1)
• It has the lowest beta to portfolio (0.85) among qualifying assets, indicating the lowest marginal VaR