Answer: Treynor of 7.5%

## Explanation When a portfolio is one sub-portfolio combined with several other portfolios into a large investment fund, the **Treynor ratio** is the appropriate risk-adjusted performance measure because it uses **beta** (systematic risk) rather than total risk (standard deviation). This is important in a multi-portfolio context where unsystematic risk can be diversified away. ### Calculation: **Treynor Ratio Formula:** \[ Treynor = \frac{R_p - R_f}{\beta_p} \] Where: - \(R_p\) = Portfolio return = 15% - \(R_f\) = Risk-free rate = 3% - \(\beta_p\) = Portfolio beta = 1.6 \[ Treynor = \frac{15\% - 3\%}{1.6} = \frac{12\%}{1.6} = 7.5\% \] ### Why not other options: - **Sharpe ratio** (Option A): Uses total risk (standard deviation), which is less appropriate when the portfolio is part of a larger diversified fund where unsystematic risk can be eliminated. - **Treynor of 6.0%** (Option B): Incorrect calculation. - **Information ratio** (Option D): Measures active return relative to tracking error, but this is more appropriate for evaluating active management against a benchmark, not for evaluating a sub-portfolio within a larger fund. Therefore, the correct answer is **Treynor of 7.5%**.

Author: LeetQuiz .