2. An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks,using both the Treynor and Sharpe measures of portfolio performance. The followingtable provides the average annual rate of return for Portfolio X, the market portfolio (asmeasured by the Standard & Poor's 500 Index), and U.S. Treasury bills (T-bills) duringthe past eight years.Annual AverageStandard DeviationRate of Returnof ReturnBetaPortfolio X10%18%0.60S&P 500131.0012n/aT-billsn/an/a = not applicablea. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X andthe S&P 500. Briefly explain whether Portfolio X underperformed, equaled, or outper-formed the S&P 500 on a risk-adjusted basis using both the Treynor measure and theSharpe measure.b. Based on the performance of Portfolio X relative to the S&P 500 calculated in part (a),briefly explain the reason for the conflicting results when using the Treynor measureversus the Sharpe measure.

Treynor ratio refers to the risk adjusted return based on the systematic risk or beta.Sharpe ratio…

Answered: 2. An analyst wants to evaluate…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 13P

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