Question 1

Your portfolio has a standard deviation of 16.6%. What is the 2-year standard deviation?

Accepted Answer

A) 14.87% 
B) 15.83% 
C) 16.55% 
D) 23.48% 
E) 24.15% 
A) 14.87% 
B) 15.83% 
C) 16.55% 
D) 23.48% 
E) 24.15%

Question 2

A portfolio has a beta of 1.25 and an actual return of 13.0%. The risk-free rate is 4.0% 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) −1.25 
E) −1.34 
A) −.86 
B) −1.01 
C) −1.14 
D) −1.25 
E) −1.34

Question 3

Which of the following measures are dependent upon the accuracy of a security's beta?
I. Sharpe ratio
II. Treynor ratio
III. Jensen's alpha

Accepted Answer

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

Question 4

Which one of the following assesses risk by stating the probability of a loss a portfolio might incur within a stated time period given a specific probability?

Accepted Answer

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

Question 5

The U.S. Treasury bill is yielding 1.85% and the market has an expected return of 7.48%. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.33 and a variance of .0045?

Accepted Answer

A) .056 
B) .064 
C) .069 
D) .082 
E) .087 
A) .056 
B) .064 
C) .069 
D) .082 
E) .087

Question 6

The Value-at-Risk measure assumes which one of the following?

Accepted Answer

A) returns are normally distributed 
B) portfolios lie on the efficient frontier 
C) all portfolios are fully diversified 
D) returns tend to follow repetitive patterns 
E) the risk premium is constant over time 
A) returns are normally distributed 
B) portfolios lie on the efficient frontier 
C) all portfolios are fully diversified 
D) returns tend to follow repetitive patterns 
E) the risk premium is constant over time

Question 7

Lester has a portfolio with an average return of 13.5% and a standard deviation of 22.5%. 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) 38.84 
C) 20.23 
D) 5.04 
E) 8.37 
A) 33.97 
B) 38.84 
C) 20.23 
D) 5.04 
E) 8.37

Question 8

Mike's portfolio has a 2-year expected return of 21.70%. What is the expected return for one year?

Accepted Answer

A) 10.85% 
B) 12.50% 
C) 13.33% 
D) 14.22% 
E) 15.34% 
A) 10.85% 
B) 12.50% 
C) 13.33% 
D) 14.22% 
E) 15.34%

Question 9

The Sharpe ratio measures a security's return relative to which one of the following?

Accepted Answer

A) total risk 
B) diversifiable risk 
C) market rate of return 
D) risk-free rate 
E) systematic risk 
A) total risk 
B) diversifiable risk 
C) market rate of return 
D) risk-free rate 
E) systematic risk

Question 10

Which one of the following is the primary purpose of the Value-at-Risk computation?

Accepted Answer

A) determine the 99% probability range given an abnormal distribution 
B) evaluate the risk-return tradeoff for a given mix of securities 
C) evaluate the probability of a significant loss 
D) determine the portfolio that maximizes the risk premium per unit of total risk 
E) determine the portfolio that maximizes the excess return per unit of systematic risk 
A) determine the 99% probability range given an abnormal distribution 
B) evaluate the risk-return tradeoff for a given mix of securities 
C) evaluate the probability of a significant loss 
D) determine the portfolio that maximizes the risk premium per unit of total risk 
E) determine the portfolio that maximizes the excess return per unit of systematic risk

Question 11

A portfolio has a beta of 1.26, a standard deviation of 15.9%, and an average return of 15.07%. The market rate is 12.7% and the risk-free rate is 3.6%. What is the Sharpe ratio?

Accepted Answer

A) .616 
B) .684 
C) .721 
D) .847 
E) .880 
A) .616 
B) .684 
C) .721 
D) .847 
E) .880

Question 12

A portfolio has a beta of 1.35, a standard deviation of 13.3%, and an average return of 12.01%. The market rate is 12.7% and the risk-free rate is 2.1%. What is the Sharpe ratio?

Accepted Answer

A) .716 
B) .745 
C) .754 
D) .847 
E) .863 
A) .716 
B) .745 
C) .754 
D) .847 
E) .863

Question 13

A portfolio has a 4.0% chance of losing 15% or more according to the VaR when T = 1. This can be interpreted to mean that the portfolio is expected to have an annual loss of 15% or more once in every how many years?

Accepted Answer

A) 1 
B) 2 
C) 25 
D) 50 
E) 100 
A) 1 
B) 2 
C) 25 
D) 50 
E) 100

Question 14

A portfolio has an expected annual return of 12.2% and a standard deviation of 18.2%. What is the smallest expected loss over the next calendar quarter given a probability of 1%?

Accepted Answer

A) 16.55% 
B) 17.25% 
C) 17.49% 
D) 18.12% 
E) 18.87% 
A) 16.55% 
B) 17.25% 
C) 17.49% 
D) 18.12% 
E) 18.87%

Question 15

A portfolio has an average return of 10.9%, a standard deviation of 9.6%, and a beta of .63. The risk-free rate is 1.8%. What is the Treynor ratio?

Accepted Answer

A) .092 
B) .106 
C) .144 
D) .164 
E) .283 
A) .092 
B) .106 
C) .144 
D) .164 
E) .283

Question 16

Which metric describes the percentage of a fund's movement that can be explained by movements in the market?

Accepted Answer

A) Jensen's alpha 
B) information ratio 
C) Tracking error 
D) R Squared 
E) Treynor ratio 
A) Jensen's alpha 
B) information ratio 
C) Tracking error 
D) R Squared 
E) Treynor ratio

Question 17

Your portfolio has an expected annual return of 8.2%. What is the 2-year expected return?

Accepted Answer

A) 11.6% 
B) 14.6% 
C) 16.4% 
D) 21.6% 
E) 23.2% 
A) 11.6% 
B) 14.6% 
C) 16.4% 
D) 21.6% 
E) 23.2%

Question 18

A portfolio has a Treynor ratio of .034, a standard deviation of 10.3%, a beta of 1.55, and an expected return of 17.0%. What is the risk-free rate?

Accepted Answer

A) 10.28% 
B) 11.31% 
C) 11.73% 
D) 12.35% 
E) 12.59% 
A) 10.28% 
B) 11.31% 
C) 11.73% 
D) 12.35% 
E) 12.59%

Question 19

A portfolio has a 3-year standard deviation of 18.1%. What is the 1-year standard deviation?

Accepted Answer

A) 6.39% 
B) 8.69% 
C) 10.45% 
D) 11.80% 
E) 12.33% 
A) 6.39% 
B) 8.69% 
C) 10.45% 
D) 11.80% 
E) 12.33%

Question 20

A portfolio has a beta of 1.23 and a standard deviation of 11.6%. What is the Sharpe ratio if the market return is 12.4% and the market risk premium is 7.9%?

Accepted Answer

A) .073 
B) .118 
C) .655 
D) .838 
E) .902 
A) .073 
B) .118 
C) .655 
D) .838 
E) .902

Exam 13: Performance Evaluation and Risk Management

Your portfolio has a standard deviation of 16.6%. What is the 2-year standard deviation?

A portfolio has a beta of 1.25 and an actual return of 13.0%. The risk-free rate is 4.0% and the market risk premium is 8.2%. What is the value of Jensen's alpha?

Which of the following measures are dependent upon the accuracy of a security's beta? I. Sharpe ratio II. Treynor ratio III. Jensen's alpha

Which one of the following assesses risk by stating the probability of a loss a portfolio might incur within a stated time period given a specific probability?

The U.S. Treasury bill is yielding 1.85% and the market has an expected return of 7.48%. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.33 and a variance of .0045?

The Value-at-Risk measure assumes which one of the following?

Lester has a portfolio with an average return of 13.5% and a standard deviation of 22.5%. 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

Mike's portfolio has a 2-year expected return of 21.70%. What is the expected return for one year?

The Sharpe ratio measures a security's return relative to which one of the following?

Which one of the following is the primary purpose of the Value-at-Risk computation?

A portfolio has a beta of 1.26, a standard deviation of 15.9%, and an average return of 15.07%. The market rate is 12.7% and the risk-free rate is 3.6%. What is the Sharpe ratio?

A portfolio has a beta of 1.35, a standard deviation of 13.3%, and an average return of 12.01%. The market rate is 12.7% and the risk-free rate is 2.1%. What is the Sharpe ratio?

A portfolio has a 4.0% chance of losing 15% or more according to the VaR when T = 1. This can be interpreted to mean that the portfolio is expected to have an annual loss of 15% or more once in every how many years?

A portfolio has an expected annual return of 12.2% and a standard deviation of 18.2%. What is the smallest expected loss over the next calendar quarter given a probability of 1%?

A portfolio has an average return of 10.9%, a standard deviation of 9.6%, and a beta of .63. The risk-free rate is 1.8%. What is the Treynor ratio?

Which metric describes the percentage of a fund's movement that can be explained by movements in the market?

Your portfolio has an expected annual return of 8.2%. What is the 2-year expected return?

A portfolio has a Treynor ratio of .034, a standard deviation of 10.3%, a beta of 1.55, and an expected return of 17.0%. What is the risk-free rate?

A portfolio has a 3-year standard deviation of 18.1%. What is the 1-year standard deviation?

A portfolio has a beta of 1.23 and a standard deviation of 11.6%. What is the Sharpe ratio if the market return is 12.4% and the market risk premium is 7.9%?

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