Final answer:
The Treynor ratio is a measure of risk-adjusted return, calculated by dividing the excess return of an investment over the risk-free rate by its beta. In this case, the Treynor ratio is 1.33.
Step-by-step explanation:
The Treynor ratio is a measure of risk-adjusted return. It is calculated by dividing the excess return of an investment over the risk-free rate by its beta. The excess return is the difference between the return of the investment and the risk-free rate.
To calculate the Treynor ratio, first calculate the excess return by subtracting the risk-free rate (0.2%) from the monthly return of the stock (3.2%). Then, divide the excess return by the beta of the stock (1.5). The formula for the Treynor ratio is:
Treynor ratio = (Return - Risk-free rate) / Beta
Plugging in the given numbers:
Treynor ratio = (3.2% - 0.2%) / 1.5
Treynor ratio = 2% / 1.5
Treynor ratio = 1.33