Question 1

Which one of the following measures a security's return in relation to the total risk associated with that security?

Accepted Answer

A) beta 
B) Jensen's alpha 
C) Sharpe ratio 
D) Treynor ratio 
E) Value-at-Risk 
A) beta 
B) Jensen's alpha 
C) Sharpe ratio 
D) Treynor ratio 
E) Value-at-Risk C

Question 2

The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?

Accepted Answer

A) raw return 
B) indexed return 
C) real return 
D) marginal return 
E) absolute return 
A) raw return 
B) indexed return 
C) real return 
D) marginal return 
E) absolute return A

Question 3

Which one of the following is measured by the Jensen-Treynor alpha?

Accepted Answer

A) total return relative to systematic risk 
B) risk premium relative to systematic 
C) risk premium relative to total risk 
D) excess return relative to systematic risk 
E) excess return relative to total risk 
A) total return relative to systematic risk 
B) risk premium relative to systematic 
C) risk premium relative to total risk 
D) excess return relative to systematic risk 
E) excess return relative to total risk D

Question 4

Which one of the following values would be the most preferable as a Sharpe ratio?

Accepted Answer

A) −1.11 
B) −.89 
C) 0 
D) .10 
E) 1.02 
A) −1.11 
B) −.89 
C) 0 
D) .10 
E) 1.02

Question 5

Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model?

Accepted Answer

A) beta of zero 
B) beta of 1.0 
C) alpha of zero 
D) alpha of 1.0 
E) alpha of −1.0 
A) beta of zero 
B) beta of 1.0 
C) alpha of zero 
D) alpha of 1.0 
E) alpha of −1.0

Question 6

A portfolio consists of the following two funds:
$\begin{array}{lrr}
&\text { Fund A }& \text { Fund B }\
\text { Expected Return } & 13 \% & 9\% \
\text { Standard deviation } & 16 \% & 10\% \
\text { Eortfolio market value } & \$ 6,000 & \$ 14,000\
\text {Correlation}{R}_A,{R}_B&0.54\
\text { Rigk-free rate }&4\%
\end{array}$
What is the Sharpe ratio of the portfolio?

Accepted Answer

A) .391 
B) .453 
C) .529 
D) .596 
E) .640 
A) .391 
B) .453 
C) .529 
D) .596 
E) .640

Question 7

A portfolio has a variance of .0165, a beta of 1.05, and an expected return of 12.65%. What is the Sharpe ratio if the expected risk-free rate is 3.4%?

Accepted Answer

A) .662 
B) .706 
C) .720 
D) .823 
E) .869 
A) .662 
B) .706 
C) .720 
D) .823 
E) .869

Question 8

What is the Treynor ratio of a portfolio comprised of 40% Portfolio A, 25% Portfolio B, and the risk-free rate is 2.5% and the market risk premium is 8.4%.
$\begin{array}{rrrrr}
\text { Asset } & \text { Weight } & \text {Avg Return}& \text { Std Dev } & \text { Beta }\
\text { A } & 40\% & 15.30\%& 17.20\% & 1.25 \
\text { B } & 25\% & 10.50\% & 9.80\% & 1.3 \
\text { C } & 35\% & 13.30\% & 14.10\% & 0.95
\end{array}$

Accepted Answer

A) .057 
B) .063 
C) .076 
D) .081 
E) .094 
A) .057 
B) .063 
C) .076 
D) .081 
E) .094

Question 9

The one-year standard deviation of your portfolio is 14.8%. What is the 2-year standard deviation?

Accepted Answer

A) 16.47% 
B) 18.23% 
C) 20.93% 
D) 25.41% 
E) 27.20% 
A) 16.47% 
B) 18.23% 
C) 20.93% 
D) 25.41% 
E) 27.20%

Question 10

The U.S. Treasury bill has a return of 2.84% while the S&P 500 is returning 10.84%. Your portfolio has an actual return of 14.76% and a beta of 1.31. What is the portfolio's Jensen's alpha?

Accepted Answer

A) −.47% 
B) −.92% 
C) 1.37% 
D) 1.44% 
E) 1.57% 
A) −.47% 
B) −.92% 
C) 1.37% 
D) 1.44% 
E) 1.57%

Question 11

Which one of the following measures risk premium in relation to systematic risk?

Accepted Answer

A) Value-at-Risk 
B) Jensen's alpha 
C) beta 
D) Sharpe ratio 
E) Treynor ratio 
A) Value-at-Risk 
B) Jensen's alpha 
C) beta 
D) Sharpe ratio 
E) Treynor ratio

Question 12

Which one of the following Value-at-Risk measures would be most appropriate for a portfolio designed for a very risk-adverse investor?

Accepted Answer

A) Prob (Rp ≤ − .20)= 100% 
B) Prob (Rp ≤ − .15)= 50% 
C) Prob (Rp ≤ − .10)= 25% 
D) Prob (Rp ≤ − .10)= 10% 
E) Prob (Rp ≤ − .05)= 1% 
A) Prob (Rp ≤ − .20)= 100% 
B) Prob (Rp ≤ − .15)= 50% 
C) Prob (Rp ≤ − .10)= 25% 
D) Prob (Rp ≤ − .10)= 10% 
E) Prob (Rp ≤ − .05)= 1%

Question 13

Which one of the following measures returns in relation to total risk?

Accepted Answer

A) Treynor ratio 
B) Sharpe ratio 
C) Jensen's alpha 
D) Value-at-Risk 
E) beta 
A) Treynor ratio 
B) Sharpe ratio 
C) Jensen's alpha 
D) Value-at-Risk 
E) beta

Question 14

Which one of the following is probably the best measure of the performance of a well-diversified portfolio?

Accepted Answer

A) Jensen's alpha 
B) Value-at-Risk 
C) Jensen-Treynor alpha 
D) Sharpe ratio 
E) Treynor ratio 
A) Jensen's alpha 
B) Value-at-Risk 
C) Jensen-Treynor alpha 
D) Sharpe ratio 
E) Treynor ratio

Question 15

A portfolio has a beta of 1.30 and an actual return of 15.5%. The risk-free rate is 3.5% and the market risk premium is 8.2%. What is the value of Jensen's alpha?

Accepted Answer

A) −.86% 
B) 1.01% 
C) 1.14% 
D) 1.23% 
E) 1.34% 
A) −.86% 
B) 1.01% 
C) 1.14% 
D) 1.23% 
E) 1.34%

Question 16

The U.S. Treasury bill is yielding 3.0% and the market has an expected return of 11.6%. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.02 and a standard deviation of 12.2%?

Accepted Answer

A) .074 
B) .086 
C) .102 
D) .619 
E) .628 
A) .074 
B) .086 
C) .102 
D) .619 
E) .628

Question 17

Your portfolio has a beta of 1.05, a standard deviation of 14.3%, and an expected return of 14.5%. The market return is 11.3% and the risk-free rate is 3.1%. What is the Treynor ratio?

Accepted Answer

A) .015 
B) .080 
C) .109 
D) .482 
E) .510 
A) .015 
B) .080 
C) .109 
D) .482 
E) .510

Question 18

A portfolio has a standard deviation of 15.1%, a beta of 1.12, and a Treynor ratio of .085. The risk-free rate is 2.2%. What is the portfolio's expected rate of return?

Accepted Answer

A) 10.83% 
B) 11.38% 
C) 11.72% 
D) 12.41% 
E) 12.56% 
A) 10.83% 
B) 11.38% 
C) 11.72% 
D) 12.41% 
E) 12.56%

Question 19

Lester has a portfolio with an average return of 10.8% and a standard deviation of 12.3%. He has a 1% probability of losing ________% or more in any given year.
$\begin{array}{cr}
\text { Probability } & \text { "z" value } \
\text { of loss } & \
1.0\% & 2.326 \
2.5 & 1.960 \
5.0 & 1.645
\end{array}$

Accepted Answer

A) 33.97 
B) 28.33 
C) 20.23 
D) 17.81 
E) 13.92 
A) 33.97 
B) 28.33 
C) 20.23 
D) 17.81 
E) 13.92

Question 20

Your portfolio has a standard deviation of 24.1%. What is the 2-year standard deviation?

Accepted Answer

A) 31.87% 
B) 34.08% 
C) 36.55% 
D) 39.48% 
E) 41.15% 
A) 31.87% 
B) 34.08% 
C) 36.55% 
D) 39.48% 
E) 41.15%

Exam 13: Performance Evaluation and Risk Management

Which one of the following measures a security's return in relation to the total risk associated with that security?

The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?

Which one of the following is measured by the Jensen-Treynor alpha?

Which one of the following values would be the most preferable as a Sharpe ratio?

Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model?

A portfolio consists of the following two funds: Fund A Fund B Expected Return 13\% 9\% Standard deviation 16\% 10\% Eortfolio market value \ 6,000 \ 14,000 Correlation , 0.54 Rigk-free rate 4\% What is the Sharpe ratio of the portfolio?

A portfolio has a variance of .0165, a beta of 1.05, and an expected return of 12.65%. What is the Sharpe ratio if the expected risk-free rate is 3.4%?

What is the Treynor ratio of a portfolio comprised of 40% Portfolio A, 25% Portfolio B, and the risk-free rate is 2.5% and the market risk premium is 8.4%. Asset Weight Avg Return Std Dev Beta A 40\% 15.30\% 17.20\% 1.25 B 25\% 10.50\% 9.80\% 1.3 C 35\% 13.30\% 14.10\% 0.95

The one-year standard deviation of your portfolio is 14.8%. What is the 2-year standard deviation?

The U.S. Treasury bill has a return of 2.84% while the S&P 500 is returning 10.84%. Your portfolio has an actual return of 14.76% and a beta of 1.31. What is the portfolio's Jensen's alpha?

Which one of the following measures risk premium in relation to systematic risk?

Which one of the following Value-at-Risk measures would be most appropriate for a portfolio designed for a very risk-adverse investor?

Which one of the following measures returns in relation to total risk?

Which one of the following is probably the best measure of the performance of a well-diversified portfolio?

A portfolio has a beta of 1.30 and an actual return of 15.5%. The risk-free rate is 3.5% and the market risk premium is 8.2%. What is the value of Jensen's alpha?

The U.S. Treasury bill is yielding 3.0% and the market has an expected return of 11.6%. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.02 and a standard deviation of 12.2%?

Your portfolio has a beta of 1.05, a standard deviation of 14.3%, and an expected return of 14.5%. The market return is 11.3% and the risk-free rate is 3.1%. What is the Treynor ratio?

A portfolio has a standard deviation of 15.1%, a beta of 1.12, and a Treynor ratio of .085. The risk-free rate is 2.2%. What is the portfolio's expected rate of return?

Lester has a portfolio with an average return of 10.8% and a standard deviation of 12.3%. He has a 1% probability of losing ________% or more in any given year. Probability "z" value of loss 1.0\% 2.326 2.5 1.960 5.0 1.645

Your portfolio has a standard deviation of 24.1%. What is the 2-year standard deviation?

A Brief History of Risk and Return

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Behavioral Finance and the Psychology of Investing

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Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

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Projecting Cash Flow and Earnings

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