Question 1

Which one of the following is a statistical model defined by its mean and standard deviation that is used to assess probabilities?

Accepted Answer

A) variance 
B) normal distribution 
C) efficient frontier 
D) Value-at-Risk 
E) Jensen's alpha 
A) variance 
B) normal distribution 
C) efficient frontier 
D) Value-at-Risk 
E) Jensen's alpha

Question 2

Which measure would you use to know whether alpha is truly significant or the result of random chance?

Accepted Answer

A) Jensen's alpha 
B) information ratio 
C) Jensen-Treynor alpha 
D) Sharpe ratio 
E) Treynor ratio 
A) Jensen's alpha 
B) information ratio 
C) Jensen-Treynor alpha 
D) Sharpe ratio 
E) Treynor ratio

Question 3

A stock has an annual standard deviation of 14.1% and an expected annual return of 11.5%. What is the smallest expected loss for the next 6 months given a probability of 2.5%?

Accepted Answer

A) 8.90% 
B) 13.79% 
C) 14.57% 
D) 15.38% 
E) 16.67% 
A) 8.90% 
B) 13.79% 
C) 14.57% 
D) 15.38% 
E) 16.67%

Question 4

Which one of the following statements is true concerning VaR?

Accepted Answer

A) VaR ignores time. 
B) VaR only applies to time periods of one year. 
C) VaR applies only to time periods equal to or greater than one year. 
D) VaR values can be computed for monthly time periods. 
E) VaR is accurate only for time periods less than one year. 
A) VaR ignores time. 
B) VaR only applies to time periods of one year. 
C) VaR applies only to time periods equal to or greater than one year. 
D) VaR values can be computed for monthly time periods. 
E) VaR is accurate only for time periods less than one year.

Question 5

Which of the following measures should be used to determine if a security should be included in a master portfolio?
I. Sharpe ratio
II. Treynor ratio
III. Jensen's alpha

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I and II only 
E) II and III only 
A) I only 
B) II only 
C) III only 
D) I and II only 
E) II and III only

Question 6

A portfolio has a beta of 1.16, a standard deviation of 12.2%, and an expected return of 11.55%. The market return is 10.4% and the risk-free rate is 3.2%. What is the portfolio's Sharpe ratio?

Accepted Answer

A) .574 
B) .684 
C) .737 
D) .770 
E) .855 
A) .574 
B) .684 
C) .737 
D) .770 
E) .855

Question 7

A stock has a return of 16.18% and a beta of 1.47. The market return is 10.65% and the risk-free rate is 3.20%. What is the Jensen-Treynor alpha of this stock?

Accepted Answer

A) −1.12% 
B) −.17% 
C) .66% 
D) 1.38% 
E) 1.59% 
A) −1.12% 
B) −.17% 
C) .66% 
D) 1.38% 
E) 1.59%

Question 8

A portfolio has an expected return of 13.8%, a beta of 1.14, and a standard deviation of 12.7%. The U.S. Treasury bill rate is 3.2%. What is the Treynor ratio?

Accepted Answer

A) .093 
B) .138 
C) .146 
D) .835 
E) .951 
A) .093 
B) .138 
C) .146 
D) .835 
E) .951

Question 9

The Miller Fund's correlation with the market is .648. What percentage of the fund's return can be explained by changes in the overall market?

Accepted Answer

A) 35% 
B) 42% 
C) 51% 
D) 65% 
E) 71% 
A) 35% 
B) 42% 
C) 51% 
D) 65% 
E) 71%

Question 10

A portfolio has a Sharpe ratio of .63, a standard deviation of 13.2%, and an expected return of 12.4%. What is the risk-free rate?

Accepted Answer

A) 3.98% 
B) 4.08% 
C) 4.82% 
D) 5.34% 
E) 6.23% 
A) 3.98% 
B) 4.08% 
C) 4.82% 
D) 5.34% 
E) 6.23%

Question 11

A portfolio has a Jensen's alpha of .93%, a beta of 1.45, and a CAPM expected return of 8.8%. The risk-free rate is 2.5%. What is the actual return of the portfolio?

Accepted Answer

A) 5.53% 
B) 6.17% 
C) 7.83% 
D) 9.73% 
E) 21.9% 
A) 5.53% 
B) 6.17% 
C) 7.83% 
D) 9.73% 
E) 21.9%

Question 12

A stock has a return of 16.9%, a standard deviation of 11.7%, and a beta of 1.50. The risk-free rate is 2.89% and the market risk premium is 8.45%. What is the Jensen-Treynor alpha of this stock?

Accepted Answer

A) −1.37% 
B) −1.09% 
C) −.48% 
D) .89% 
E) 1.05% 
A) −1.37% 
B) −1.09% 
C) −.48% 
D) .89% 
E) 1.05%

Question 13

A portfolio has a Treynor ratio of .055, a standard deviation of 13.3%, a beta of 1.22, and an expected return of 15.3%. What is the risk-free rate?

Accepted Answer

A) 6.18% 
B) 7.21% 
C) 7.39% 
D) 8.18% 
E) 8.59% 
A) 6.18% 
B) 7.21% 
C) 7.39% 
D) 8.18% 
E) 8.59%

Question 14

A portfolio has a standard deviation of 15.8% and an average return of 14.2%. What loss is associated with a 2.5% probability?
$\begin{array}{cr}
\text { Probability } & \text { "z" value } \
\text { of loss } & \
1.0\% & 2.326 \
2.5 & 1.960 \
5.0 & 1.645
\end{array}$

Accepted Answer

A) 12.03% 
B) 14.87% 
C) 16.77% 
D) 17.38% 
E) 19.36% 
A) 12.03% 
B) 14.87% 
C) 16.77% 
D) 17.38% 
E) 19.36%

Question 15

A portfolio has an average return of 14.2% and a standard deviation of 12.85%. Given this, you should expect to lose at least ________% on an annual basis once every century.
$\begin{array}{cr}
\text { Probability } & \text { "z" value } \
\text { of loss } & \
1.0\% & 2.326 \
2.5 & 1.960 \
5.0 & 1.645
\end{array}$

Accepted Answer

A) 19.53 
B) 17.24 
C) 15.69 
D) 1.710 
E) 1.550 
A) 19.53 
B) 17.24 
C) 15.69 
D) 1.710 
E) 1.550

Question 16

The U.S. Treasury bill is yielding 1.5% and the market has an expected return of 10.2%. What is the Sharpe ratio of a portfolio that has a beta of 1.32 and a variance of .0323?

Accepted Answer

A) .550 
B) .573 
C) .639 
D) .743 
E) .826 
A) .550 
B) .573 
C) .639 
D) .743 
E) .826

Question 17

Which one of the following correctly states the VaR for a 3-year period with a 2.5% probability?

Accepted Answer

A) Prob[Rp,T ≤ E(Rp)× 3 − 1.645 × σp √3] 
B) Prob[Rp,T ≤ E(Rp)× √3 − 1.645 × σp 3] 
C) Prob[Rp,T ≤ E(Rp)× √3 − 1.645 × σp √3] 
D) Prob[Rp,T ≤ E(Rp)× 3 − 1.960 × σp √3] 
E) Prob[Rp,T ≤ E(Rp)× √3 − 1.960 × σp 3] 
A) Prob[Rp,T ≤ E(Rp)× 3 − 1.645 × σp √3] 
B) Prob[Rp,T ≤ E(Rp)× √3 − 1.645 × σp 3] 
C) Prob[Rp,T ≤ E(Rp)× √3 − 1.645 × σp √3] 
D) Prob[Rp,T ≤ E(Rp)× 3 − 1.960 × σp √3] 
E) Prob[Rp,T ≤ E(Rp)× √3 − 1.960 × σp 3]

Question 18

The Sharpe ratio is best used to evaluate which one of the following?

Accepted Answer

A) corporate bonds 
B) government bonds 
C) Treasury bills 
D) individual stocks 
E) diversified portfolios 
A) corporate bonds 
B) government bonds 
C) Treasury bills 
D) individual stocks 
E) diversified portfolios

Question 19

A portfolio consists of the following two funds:
$\begin{array}{lrr}
&\text { Fund A }& \text { Fund B }\
\text { Expected Return } & 16 \% & 9\% \
\text { Standard deviation } & 21 \% & 11\% \
\text { Portfolio market value } & \$ 27,000 & \$ 33,000\
\text {Weight}&45\%&55\%\
\text {Correlation}{R}_A,{R}_B&0.21\
\text { Rigk-free rate }&2.5\%
\end{array}$
What is the Sharpe ratio of the portfolio?

Accepted Answer

A) .333% 
B) .425% 
C) .635% 
D) .788% 
E) .838% 
A) .333% 
B) .425% 
C) .635% 
D) .788% 
E) .838%

Question 20

Tony brags that his portfolio's rate of return is "beating the market". Which one of the following would best substantiate his claim?

Accepted Answer

A) positive Sharpe ratio 
B) negative Treynor ratio 
C) positive Jensen's alpha 
D) zero Value-at-Risk 
E) beta greater than 1.0 
A) positive Sharpe ratio 
B) negative Treynor ratio 
C) positive Jensen's alpha 
D) zero Value-at-Risk 
E) beta greater than 1.0

Exam 13: Performance Evaluation and Risk Management

Which one of the following is a statistical model defined by its mean and standard deviation that is used to assess probabilities?

Which measure would you use to know whether alpha is truly significant or the result of random chance?

A stock has an annual standard deviation of 14.1% and an expected annual return of 11.5%. What is the smallest expected loss for the next 6 months given a probability of 2.5%?

Which one of the following statements is true concerning VaR?

Which of the following measures should be used to determine if a security should be included in a master portfolio? I. Sharpe ratio II. Treynor ratio III. Jensen's alpha

A portfolio has a beta of 1.16, a standard deviation of 12.2%, and an expected return of 11.55%. The market return is 10.4% and the risk-free rate is 3.2%. What is the portfolio's Sharpe ratio?

A stock has a return of 16.18% and a beta of 1.47. The market return is 10.65% and the risk-free rate is 3.20%. What is the Jensen-Treynor alpha of this stock?

A portfolio has an expected return of 13.8%, a beta of 1.14, and a standard deviation of 12.7%. The U.S. Treasury bill rate is 3.2%. What is the Treynor ratio?

The Miller Fund's correlation with the market is .648. What percentage of the fund's return can be explained by changes in the overall market?

A portfolio has a Sharpe ratio of .63, a standard deviation of 13.2%, and an expected return of 12.4%. What is the risk-free rate?

A portfolio has a Jensen's alpha of .93%, a beta of 1.45, and a CAPM expected return of 8.8%. The risk-free rate is 2.5%. What is the actual return of the portfolio?

A stock has a return of 16.9%, a standard deviation of 11.7%, and a beta of 1.50. The risk-free rate is 2.89% and the market risk premium is 8.45%. What is the Jensen-Treynor alpha of this stock?

A portfolio has a Treynor ratio of .055, a standard deviation of 13.3%, a beta of 1.22, and an expected return of 15.3%. What is the risk-free rate?

A portfolio has a standard deviation of 15.8% and an average return of 14.2%. What loss is associated with a 2.5% probability? Probability "z" value of loss 1.0\% 2.326 2.5 1.960 5.0 1.645

A portfolio has an average return of 14.2% and a standard deviation of 12.85%. Given this, you should expect to lose at least ________% on an annual basis once every century. Probability "z" value of loss 1.0\% 2.326 2.5 1.960 5.0 1.645

The U.S. Treasury bill is yielding 1.5% and the market has an expected return of 10.2%. What is the Sharpe ratio of a portfolio that has a beta of 1.32 and a variance of .0323?

Which one of the following correctly states the VaR for a 3-year period with a 2.5% probability?

The Sharpe ratio is best used to evaluate which one of the following?

A portfolio consists of the following two funds: Fund A Fund B Expected Return 16\% 9\% Standard deviation 21\% 11\% Portfolio market value \ 27,000 \ 33,000 Weight 45\% 55\% Correlation , 0.21 Rigk-free rate 2.5\% What is the Sharpe ratio of the portfolio?

Tony brags that his portfolio's rate of return is "beating the market". Which one of the following would best substantiate his claim?

A Brief History of Risk and Return

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Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

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Return, Risk, and the Security Market Line

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