Exam 13: Performance Evaluation and Risk Management

___________ measures investment performance as the ratio of the portfolio risk premium over the portfolio beta. This approach gives the amount of risk premium per unit of beta.

In an efficient market, which of the following performance measures should be zero for all assets? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

A portfolio has an average return of 9.7 percent, a standard deviation of 8.6 percent, and a beta of .72. The risk-free rate is 2.1 percent. What is the Treynor ratio? Refer: To: 13-72

What is the importance of value-at-risk?

A portfolio consists of Stock C with an expected return of 10 percent and a standard deviation of 45 percent and Stock D with an expected return of 13 percent and a standard deviation of 56 percent. The portfolio is equally-weighted between the two stocks, and the correlation between the two stocks is zero. What is the smallest expected loss of the portfolio over the next month with a probability of 5 percent?

A portfolio with a beta of 0.9 has an expected return of 11 percent and a standard deviation of 24 percent. The expected return of the market is 12 percent, and the risk-free is 5 percent. What is Jensen's alpha for the portfolio?

What is Jensen's alpha for portfolio D? Refer: To: 13-72

A stock has an average annual return of 50.17 percent. What is the 2-year average return?

Which of the following performance metrics measures reward-to-risk? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

In an active management strategy, the composition of the portfolio is

A stock had a return of 16.4 percent and a beta of 1.2. The market return was 12.1 percent and the risk-free rate was 5.2 percent. What is the Jensen-Treynor alpha for the stock?

In an efficient market, which of the following will be the same for every asset? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

The best performance measure overall is:

Which of the following is true regarding active portfolio management strategy?

Explain why performance measures, beyond simply the raw return, are used to measure professional money management performance.

Consider a portfolio with an initial expected return, beta, and standard deviation. Improvement in which of the performance measures will improve value-at-risk to the extent that the potential loss will decrease? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

A portfolio with a beta of 0.9 has an expected return of 11 percent and a standard deviation of 24 percent. The expected return of the market is 12 percent, and the risk-free is 5 percent. What is the Sharpe ratio for the portfolio?

The best performance measures of a market index fund would be

Which of the following represents the best Sharpe ratio for an investment decision?

The Jensen-Treynor alpha is defined as: