Explanation:
For both the Treynor and Sharpe measures, a higher number indicates outperformance:
| Stock Portfolio | Market |
|---|---|
| Treynor: | Treynor: |
| Sharpe: | Sharpe: |
(Book 1, Module 5.3, LO 5.g)
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Question 91
A financial advisor has asked his junior analyst to assess the performance of a client's stock portfolio relative to the overall market (with the S&P 500 serving as a proxy). The analyst uses the data provided in the following table:
| Metric | Stock Portfolio | Market (S&P 500) |
|---|---|---|
| Expected Return [E(R)] | 6.30% | 5.85% |
| Beta (β) | 1.12 | 1.00 |
| Standard Deviation (σ) | 9.05% | 8.20% |
| Risk-Free Rate (R<sub>F</sub>) | 3.95% |
Using both the Treynor and Sharpe measures, the analyst should determine that:
A
the market outperformed the stock portfolio based on both the Treynor and Sharpe measures.
B
the stock portfolio outperformed the market based on both the Treynor and Sharpe measures.
C
the market outperformed using the Treynor measure, while the stock portfolio outperformed using the Sharpe measure.
D
the stock portfolio outperformed using the Treynor measure, while the market outperformed using the Sharpe measure.
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