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