Consider the assets outlined in the table above.Which asset offers the best risk-return trade-off?
A) Stock A
B) Stock B
C) The risk-free asset
D) Either Stock A or Stock B as both have the same risk-return trade-off

Question

Consider the assets outlined in the table above.Which asset offers the best risk-return trade-off?
A) Stock A 
B) Stock B 
C) The risk-free asset 
D) Either Stock A or Stock B as both have the same risk-return trade-off

Quizplus · Accepted Answer

The Treynor Index measures the excess of an asset's return over the risk-free return per unit of systematic risk, essentially the risk-return trade off.
Treynor Index = 11ea7fdb_fc0c_6ebe_a768_fb69e1512f9a_TB2902_11 Treynor Index for Stock A = 11ea7fdb_fc0c_6ebf_a768_cf6171c198d9_TB2902_11 = 0.0444
Treynor Index for Stock B = 11ea7fdb_fc0c_6ec0_a768_fbe61aa686ba_TB2902_11 = 0.0428
Stock A has the higher Treynor Index, and therefore the better risk-return trade-off.

Consider the Assets Outlined in the Table Above