The Treynor measure (or Treynor ratio) evaluates the excess return of a portfolio per unit of systematic risk (measured by Beta).
The formula is:
Treynor Ratio=βpE(Rp)−Rf
Given:
- Expected Return of Portfolio M, E(Rp) = 8% = 0.08
- Risk-free rate, Rf = 4% = 0.04
- Beta, βp = 0.8
Calculation:
Treynor Ratio=0.80.08−0.04=0.80.04=0.05
Therefore, the Treynor measure is 0.05.