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    Using the Sharpe and Treynor Indexes

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    Assume the following information over a five-year period:
    ? average risk-free rate =6%
    ? average return for Crane stock =11%
    ? average return for Load stock = 14%
    ? standard deviation of Crane stock return =2%
    ? standard deviation of Load stock returns = 4%
    ? Beta of Crane stock = 0.8
    ? Beta of Load stock = 1.1

    Can you determine which stock has higher risk-adjusted returns when using the Sharpe index? Which stock has higher risk-adjusted returns when using the Treynor index? Can you please show me your work?

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    Solution Preview

    The Sharpe Index measures the return of a stock relative to its risk by using its standard deviation. (Actually, this ratio should be used with portfolios, but your question ...

    Solution Summary

    This solution demonstrates the computation of the Sharpe and Treynor indexes.