Use the information below to calculate the Sharpe ratio, the Treynor ratio, the

Question

Use the information below to calculate the Sharpe ratio, the Treynor ratio, the (Alpha), and the M2 of your portfolio P. Compare the Sharpe ratio and the Treynor ratio to those of the stock market.

                        Portfolio (P)                            Stock Market (M)                   T-bills

Return             10%                                         8%                                           0.5%

STD (returns) 20%                                         12%                                         0

eta                0.8                                           1

Explanation / Answer

sharpe ratio = return of portfolio - risk free rate/standard deviation

= 10%-0.5%/20%

= 0.475

treynor ratio = return of portfolio - risk free rate/beta

= 10% - 0.5%/0.8

= 0.0625

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