[ 2009 FRM Sample Exam ] Investment Management Q3

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3. Which of the following statements about the Treynor ratio is correct?

The Treynor ratio considers both systematic and unsystematic risk of a portfolio.

The Treynor ratio is equal to the excess return of a portfolio over the risk-free rate divided by the total risk of the portfolio.

The Treynor ratio can be used to appraise the performance of well-diversified portfolios.

The Treynor ratio is derived from portfolio theory since it assesses a portfolio's excess return relative to its risk.

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lalamei

 

Correct answer is C

A is incorrect ? Treynor ratio considers only systematic risk of a well-diversified portfoliofficeffice" />

B is incorrect ? Treynor ratio denominator is beta of the portfolio

C is correct ? this statement is correct

D is correct ? Treynor ratio is derived from CAPM and not portfolio theory