Answer: Asset C

## 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

Author: LeetQuiz .