Consider the following information concerning three portfolios, the market portf

Question

Consider the following information concerning three portfolios, the market portfolio, and the risk-free asset:

What is the Sharpe ratio, Treynor ratio, and Jensen’s alpha for each portfolio? (Negative values should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your Sharpe ratio answers and Treynor ratio answers to 5 decimal places and Jensen's alpha answers to 2 decimal places. Omit the "%" sign in your response.)

  Portfolio RP P P X 14.0 % 31 % 1.35   Y 13.0 26 1.10   Z 7.0 14 .75   Market 10.2 19 1.00   Risk-free 6.0 0 0  

Explanation / Answer

SHARPE RATIO=(PROTFOLIO RETURN-RISK FREE RETURN)/STANDARD DEVIATION

TREYNOR RATIO=(PROTFOLIO RETURN-RISK FREE RETURN)/BETA

JENSEN'S ALPHA=PROTFOLIO RETURN-(RISK FREE RETURN+BETA(RETURN OF MARKET-RISK FREE RETURN))

PORTFOLIO SHARPE RATIO TREYNOR RATIO JENSEN'S ALPHA X (14-6)/31=0.25806 (14-6)/1.35=5.92593 14-(6+1.35(10.2-6))=2.33 Y (13-6)/26=0.26923 (13-6)/1.10=6.36364 13-(6+1.10(10.2-6))=2.38 Z (7-6)/14=0.07143 (7-6)/0.75=1.33333 7-(6+0.75(10.2-6))=(2.15) MARKET (10.2-6)/19=0.22105 (10.2-6)/1=4.20000 10.2-(6+1(10.2-6))=0

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