Difficulties in adjusting average returns for risk present a host of issues, as the proper measure of risk may not be obvious, and risk levels may change along with portfolio composition. The following data is given for a particular sample period: Portfolio P Market M Average return 35 % 28 % Beta 1.2 1.0 Standard deviation 42 % 30 % Calculate the following performance measures for portfolio P and the market: Sharpe, Jensen (alpha) and Treynor. The Treasury bill rate during the period was 6 %. By which measures did portfolio P outperform the market? What do these measures mean or imply? Explain.

Difficulties in adjusting average returns for risk present a host of issues, as the proper measure of risk may not be obvious, and risk levels may change along with portfolio composition. The following data is given for a particular sample period: Portfolio P Market M Average return 35 % 28 % Beta 1.2 1.0 Standard deviation 42 % 30 % Calculate the following performance measures for portfolio P and the market: Sharpe, Jensen (alpha) and Treynor. The Treasury bill rate during the period was 6 %. By which measures did portfolio P outperform the market? What do these measures mean or imply? Explain.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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