Ms. Emily Chen, a high-net-worth investor in British Columbia, has evaluated two investment managers over the past three years. Manager A's portfolio generated an average annual return of 9.5% with a Beta of 1.15. Manager B's portfolio generated an average annual return of 8.0% with a Beta of 0.85. The average risk-free rate during this period was 2.0%, and the market risk premium was 6.0%. Which manager provided superior risk-adjusted returns according to Treynor Ratio, and what is that ratio for the superior manager?

Question: Ms. Emily Chen, a high-net-worth investor in British Columbia, has evaluated two investment managers over the past three years. Manager A's portfolio generated an average annual return of 9.5% with a Beta of 1.15. Manager B's portfolio generated an average annual return of 8.0% with a Beta of 0.85. The average risk-free rate during this period was 2.0%, and the market risk premium was 6.0%. Which manager provided superior risk-adjusted returns according to Treynor Ratio, and what is that ratio for the superior manager?

Answer options:

• Manager A: 6.52% ✅ Manager B: 7.06%
• Manager A: 7.39%
• Manager B: 6.00%

Correct answer: Manager B: 7.06%

Explanation: The Treynor Ratio is calculated as (Portfolio Return - Risk-Free Rate) / Beta. For Manager A: (9.5% - 2.0%) / 1.15 = 7.5% / 1.15 ≈ 6.52%. For Manager B: (8.0% - 2.0%) / 0.85 = 6.0% / 0.85 ≈ 7.06%. Manager B has a higher Treynor Ratio.