An Investor's Portfolio Increased in Value by 53% Over a Five-Year

question 97

Short Answer

An investor's portfolio increased in value by 53% over a five-year period while the Consumer Price Index rose from 121.6 to 135.3. What was the portfolio's annually compounded real rate of return?

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Definitions:

Treynor Measure

A performance metric for determining how well an investment compensates the investor for taking risk, calculated as the excess return over the risk-free rate relative to the beta of the portfolio.

Beta

A means to evaluate the fluctuation, or inherent risk, of a security or portfolio against the aggregate market.

S&P 500 Index

A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States, often used as a benchmark for the overall market.

Risk-Adjusted Return

A measure of the return on an investment relative to the risk taken, often used to compare the performance of investment options.