Morgan Stock Has an Average Return Minus the Average Risk-Free

question 31

Multiple Choice

Morgan stock has an average return minus the average risk-free rate of 12.5 percent, a beta of 2.5, and a standard deviation of returns of 20 percent. The Treynor index of Morgan stock is

• A) 0.0625.
• B) 0.05.
• C) 0.35.
• D) 0.03.
• E) none of the above

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Definitions:

Expected Return

The anticipated return on an investment, taking into account all possible outcomes, their probabilities, and their corresponding returns.

Required Return

The minimum rate of return on an investment that is necessary for an investor to consider making that investment.

Market Risk

The risk of losses in positions arising from movements in market prices.

Diversify

The strategy of spreading investments across various financial assets, industries, or other categories to reduce risk.