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Problem 18-01

The following portfolios are being considered for investment. During the period under consideration, RFR = 0.06.

Portfolio	Return	Beta	i
P	0.21	1.50	0.12
Q	0.14	1.00	0.06
R	0.08	0.70	0.04
S	0.17	1.20	0.07
Market	0.11	1.00	0.05

1. Compute the Sharpe measure for each portfolio and the market portfolio. Round your answers to three decimal places.

Portfolio	Sharpe measure
P
Q
R
S
Market

1. Compute the Treynor measure for each portfolio and the market portfolio. Round your answers to three decimal places.

Portfolio	Treynor measure
P
Q
R
S
Market

1. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.

Portfolio	Rank (Sharpe measure)	Rank (Treynor measure)
P	-Select-12345Item 11	-Select-12345Item 12
Q	-Select-12345Item 13	-Select-12345Item 14
R	-Select-12345Item 15	-Select-12345Item 16
S	-Select-12345Item 17	-Select-12345Item 18
Market	-Select-12345Item 19	-Select-12345Item 20

-Select-Portfolio PPortfolio QPortfolio RPortfolio SItem 21 is poorly diversified since it has a high ranking based on the -Select-Treynor measureSharpe measureItem 22 , but a much lower ranking with the -Select-Treynor measureSharpe measureItem 23 .