Question

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio:
Long Horn Market Portfolio
Average return 19 % 12 %
Standard deviations of returns 35 % 15 %
Beta 1.5 1.0
Residual standard deviation 3.0 % 0.0 %
The risk-free return during the sample period was 6%.
What is the Treynor measure of performance evaluation for Long Horn Stock Fund?
a. 0.0133
b. 0.04
c. 0.0867
d. 0.3143
e. 0.3714

Answer 1

Answer: c. 0.0867

Explanation:

Treynor measure for Long Horn Stock Fund;

= (Average return - Risk-free return) / Beta

= (19% - 6%) / 1.5

= 0.08666667

= 0.0867