Explanation:
The Treynor measure is the most appropriate performance measure in this scenario because:
Since we have beta values and want to compare performance relative to systematic risk exposure, the Treynor measure is the optimal choice for this analysis.
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Donaldson Capital Management, a regional money management firm, manages nearly $400 million allocated among three investment managers. All portfolios have the same objective, which is to produce superior risk-adjusted returns (by beating the market) for their clients. You have been hired as a consultant to measure the performance of the portfolio managers. You have collected the following information based on the last ten years of returns.
| Portfolio Manager | Mean Annualized Rate of Return | Beta | Standard Deviation of Return |
|---|---|---|---|
| a | 0.18 | 1.35 | 0.24 |
| b | 0.21 | 1.95 | 0.25 |
| c | 0.24 | 2.10 | 0.22 |
During the same time period the average annual rate of return on the market portfolio was 13% with a standard deviation of 19%. In order to assess the portfolio performance of the above managers, you should use:
A
The Treynor measure of performance
B
The Sharpe measure of performance
C
The Jensen measure of performance
D
The Sortino measure of performance
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