You Are Comparing Three Assets Which Have Differing Treynor Ratios

question 21

Multiple Choice

You are comparing three assets which have differing Treynor ratios. Given this, which one of the following must be true?

• A)The assets may all be correctly priced if they have differing betas.
• B)The assets have differing rates of return.
• C)The assets have differing levels of market risk but equal amounts of total risk.
• D)The assets are all mispriced according to CAPM.
• E)The preferred investment is the asset with the highest Treynor ratio.

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Definitions:

Full Faith

A phrase often used within legal contexts to describe the complete trust or belief in the validity of something, especially in "full faith and credit" in legal documents or agreements between states.

Credit Clause

A provision of the United States Constitution that requires states to respect the "public acts, records, and judicial proceedings" of other states.

Judicial Proceedings

The process and activities that take place in courts during the handling of legal cases, including trials, hearings, and appeals.

Police Power

The capacity of the states to regulate behavior and enforce order within their territory for the betterment of the health, safety, morals, and general welfare of their inhabitants.