The Witney Growth Fund, a no-load mutual fund, had a net asset value per share of $54.28 one year ago
Its current net asset value is $56.93. During the year it paid out dividends and capital gains of $2.08 per share. It has a beta value of 1.75. Over the same period the market return was 6.4% and the risk-free rate of return was 3.5%.
(a) Calculate Treynor's measure for the Witney Growth Fund. (Show all work.)
(b) Based on Treynor's measure, how did the fund perform in relation to the overall market?
What will be an ideal response?
Answer:
(a) HPR (fund) =[$2.08 + ($56.93 - $54.28)]/$54.28 = 8.71%
Treynor's (fund) = (8.71% - 3.5%)/1.75 = 2.98%
(b) Treynor (market) = (6.4% - 3.5%)/1.00 = 2.90%
The fact that Treynor's measure of 2.98% for the Witney Growth Fund is greater than the 2.90% measure for the market indicates that the fund's performance is superior to the market. That is, the fund's risk premium per unit of nondiversifiable risk is greater than that of the market.
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