Question 1

The statistical model for assessing probabilities based on a mean and standard deviation is called the ___________ distribution.

Accepted Answer

A)  t- 
B)  Chi squared 
C)  F 
D)  Normal 
E)  Binomial 
A)  t- 
B)  Chi squared 
C)  F 
D)  Normal 
E)  Binomial

Question 2

Which of the following is not true about the Sharpe ratio?

Accepted Answer

A)  An estimate for the beta of the portfolio is not required. 
B)  It penalizes a portfolio that is not diversified. 
C)  It allows us to find the best portfolio on the efficient frontier. 
D)  It is useful for measuring the performance of an individual asset. 
E)  All of the above are true about the Sharpe ratio. 
A)  An estimate for the beta of the portfolio is not required. 
B)  It penalizes a portfolio that is not diversified. 
C)  It allows us to find the best portfolio on the efficient frontier. 
D)  It is useful for measuring the performance of an individual asset. 
E)  All of the above are true about the Sharpe ratio.

Question 3

What is the Treynor ratio for Portfolio B?
Refer: To: 13-72

Accepted Answer

A)  0.084 
B)  0.076 
C)  0.089 
D)  0.067 
E)  0.073 
A)  0.084 
B)  0.076 
C)  0.089 
D)  0.067 
E)  0.073

Question 4

What is main difference between passive and active portfolio management strategy?

Accepted Answer

Passive portfolios attempt to track the

Question 5

The passive portfolio management involves

Accepted Answer

A)  Programming 
B)  Market timing 
C)  Tactical asset allocation 
D)  A sector rotation technique 
E)  A buy and hold strategy 
A)  Programming 
B)  Market timing 
C)  Tactical asset allocation 
D)  A sector rotation technique 
E)  A buy and hold strategy

Question 6

Which of the following performance measures requires a correlation coefficient to calculate the performance measure for a new portfolio of two or more assets?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha

Accepted Answer

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

Question 7

The Sharpe-optimal fund allocation line has

Accepted Answer

A)  a slope of -1. 
B)  a slope of +1. 
C)  the highest slope possible given the portfolio opportunity set. 
D)  a slope of zero. 
E)  none of the above. 
A)  a slope of -1. 
B)  a slope of +1. 
C)  the highest slope possible given the portfolio opportunity set. 
D)  a slope of zero. 
E)  none of the above.

Question 8

_________ is defined as the return of an investment without any adjustment for risk or comparison to a benchmark.

Accepted Answer

A)  The Treynor ratio 
B)  The raw return 
C)  Jensen's alpha 
D)  The Sharpe ratio 
E)  The Jensen-Treynor alpha 
A)  The Treynor ratio 
B)  The raw return 
C)  Jensen's alpha 
D)  The Sharpe ratio 
E)  The Jensen-Treynor alpha

Question 9

_______ gives the excess return of a hypothetical portfolio over the market portfolio while they carry the same risk.

Accepted Answer

A)  The Treynor ratio 
B)  The Tobin's q 
C)  The Jensen's alpha 
D)  The Sharpe ratio 
E)  The M2 measure 
A)  The Treynor ratio 
B)  The Tobin's q 
C)  The Jensen's alpha 
D)  The Sharpe ratio 
E)  The M2 measure

Question 10

The Treynor ratio measures the _________ per unit of ___________ risk.

Accepted Answer

A)  Raw return; total 
B)  Raw return; systematic 
C)  Portfolio excess return; systematic 
D)  Portfolio excess return; total 
E)  Portfolio excess return; unique 
A)  Raw return; total 
B)  Raw return; systematic 
C)  Portfolio excess return; systematic 
D)  Portfolio excess return; total 
E)  Portfolio excess return; unique

Question 11

A negative Sharpe ratio indicates

Accepted Answer

A)  a contrarian management style. 
B)  a portfolio which failed to beat the performance of the risk free asset. 
C)  a portfolio which is well managed. 
D)  the portfolio's raw return was great than its standard deviation 
E)  None of the above. 
A)  a contrarian management style. 
B)  a portfolio which failed to beat the performance of the risk free asset. 
C)  a portfolio which is well managed. 
D)  the portfolio's raw return was great than its standard deviation 
E)  None of the above.

Question 12

The Sharpe ratio measures return relative to

Accepted Answer

A)  Total risk 
B)  Diversifiable risk 
C)  The market return 
D)  The risk-free return 
E)  Systematic risk 
A)  Total risk 
B)  Diversifiable risk 
C)  The market return 
D)  The risk-free return 
E)  Systematic risk

Question 13

What is the Treynor ratio for Portfolio D?
Refer: To: 13-72

Accepted Answer

A)  0.078 
B)  0.073 
C)  0.083 
D)  0.080 
E)  0.086 
A)  0.078 
B)  0.073 
C)  0.083 
D)  0.080 
E)  0.086

Question 14

Assuming the market is efficient, what do you know about Jensen's alpha for all assets in the market? Will this always hold in an efficient market? Why or why not?

Accepted Answer

In an efficient market, Jensen's alpha f

Question 15

How do you interpret this VaR statistic: Prob (Rp $\le$ -0.09) = 23%?

Accepted Answer

A)  If your portfolio declines by 9% or more, that decline is expected to be followed by a 23% increase in value 
B)  Your portfolio is expected to lose at least 9%, but not more than 23% in any given year 
C)  There is a 23% chance that your portfolio will be worth at least 9% less one year from now than it is today 
D)  Sometime in the future, your portfolio is expected to lose 9% or more in a single year, but have an overall average rate of return of 23% 
E)  If your portfolio rises in value by at least 23%, you should expect a market correction of 9% or more 
A)  If your portfolio declines by 9% or more, that decline is expected to be followed by a 23% increase in value 
B)  Your portfolio is expected to lose at least 9%, but not more than 23% in any given year 
C)  There is a 23% chance that your portfolio will be worth at least 9% less one year from now than it is today 
D)  Sometime in the future, your portfolio is expected to lose 9% or more in a single year, but have an overall average rate of return of 23% 
E)  If your portfolio rises in value by at least 23%, you should expect a market correction of 9% or more

Question 16

Your portfolio has an annualized standard deviation of 15.6% and average annual return of 12.8%. You have a 5% probability of losing ________ or more in any given year. Note: the 5% probability level has a "Z" value of 1.645.

Accepted Answer

A)  18.63% 
B)  14.00% 
C)  12.86% 
D)  10.34% 
E)  9.51% 
A)  18.63% 
B)  14.00% 
C)  12.86% 
D)  10.34% 
E)  9.51%

Question 17

A stock has an annual expected return of 12.5 percent and an annual standard deviation of 48 percent. What is the smallest expected loss over the next year with a probability of 5 percent?

Accepted Answer

A)  -57.21% 
B)  -62.89% 
C)  -69.27% 
D)  -66.46% 
E)  -60.18% 
A)  -57.21% 
B)  -62.89% 
C)  -69.27% 
D)  -66.46% 
E)  -60.18%

Question 18

A portfolio has an annual expected return of 10 percent and a standard deviation of 18 percent. What is the smallest expected loss over the next two years with a probability of 2.5 percent?

Accepted Answer

A)  -29.89% 
B)  -41.63% 
C)  -37.21% 
D)  -39.06% 
E)  -32.19% 
A)  -29.89% 
B)  -41.63% 
C)  -37.21% 
D)  -39.06% 
E)  -32.19%

Question 19

Compare and contrast how the Jensen and the Sharpe ratio evaluate management performance. Further discuss the most appropriate application of each.

Accepted Answer

Both the Treynor and the Sharpe ratio me

Question 20

A stock has a 2-year average return of 38.9 percent. What is the average annual return?

Accepted Answer

A)  19.45% 
B)  12.80% 
C)  77.80% 
D)  10.34% 
E)  6.23% 
A)  19.45% 
B)  12.80% 
C)  77.80% 
D)  10.34% 
E)  6.23%

The statistical model for assessing probabilities based on a mean and standard deviation is called the ___________ distribution.

Which of the following is not true about the Sharpe ratio?

What is the Treynor ratio for Portfolio B? Refer: To: 13-72

What is main difference between passive and active portfolio management strategy?

The passive portfolio management involves

Which of the following performance measures requires a correlation coefficient to calculate the performance measure for a new portfolio of two or more assets? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

The Sharpe-optimal fund allocation line has

_________ is defined as the return of an investment without any adjustment for risk or comparison to a benchmark.

_______ gives the excess return of a hypothetical portfolio over the market portfolio while they carry the same risk.

The Treynor ratio measures the _ per unit of ___ risk.

A negative Sharpe ratio indicates

The Sharpe ratio measures return relative to

What is the Treynor ratio for Portfolio D? Refer: To: 13-72

Assuming the market is efficient, what do you know about Jensen's alpha for all assets in the market? Will this always hold in an efficient market? Why or why not?

How do you interpret this VaR statistic: Prob (R_p $\le$ -0.09) = 23%?

Your portfolio has an annualized standard deviation of 15.6% and average annual return of 12.8%. You have a 5% probability of losing ________ or more in any given year. Note: the 5% probability level has a "Z" value of 1.645.

A stock has an annual expected return of 12.5 percent and an annual standard deviation of 48 percent. What is the smallest expected loss over the next year with a probability of 5 percent?

A portfolio has an annual expected return of 10 percent and a standard deviation of 18 percent. What is the smallest expected loss over the next two years with a probability of 2.5 percent?

Compare and contrast how the Jensen and the Sharpe ratio evaluate management performance. Further discuss the most appropriate application of each.

A stock has a 2-year average return of 38.9 percent. What is the average annual return?

A Brief History of Risk and Return

Diversification and Risky Asset Allocation

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behaviour and Market Efficiency

Behavioural Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk and Security Management

Options

Option Valuation

Futures Contracts

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds and Mortgaged-Backed Securities

International Portfolio Investment

Filters

Exam 13: Performance Evaluation and Risk Management

The statistical model for assessing probabilities based on a mean and standard deviation is called the ___________ distribution.

Which of the following is not true about the Sharpe ratio?

What is the Treynor ratio for Portfolio B? Refer: To: 13-72

What is main difference between passive and active portfolio management strategy?

The passive portfolio management involves

Which of the following performance measures requires a correlation coefficient to calculate the performance measure for a new portfolio of two or more assets? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

The Sharpe-optimal fund allocation line has

_________ is defined as the return of an investment without any adjustment for risk or comparison to a benchmark.

_______ gives the excess return of a hypothetical portfolio over the market portfolio while they carry the same risk.

The Treynor ratio measures the _________ per unit of ___________ risk.

A negative Sharpe ratio indicates

The Sharpe ratio measures return relative to

What is the Treynor ratio for Portfolio D? Refer: To: 13-72

Assuming the market is efficient, what do you know about Jensen's alpha for all assets in the market? Will this always hold in an efficient market? Why or why not?

How do you interpret this VaR statistic: Prob (Rp ≤\le≤ -0.09) = 23%?

Your portfolio has an annualized standard deviation of 15.6% and average annual return of 12.8%. You have a 5% probability of losing ________ or more in any given year. Note: the 5% probability level has a "Z" value of 1.645.

A stock has an annual expected return of 12.5 percent and an annual standard deviation of 48 percent. What is the smallest expected loss over the next year with a probability of 5 percent?

A portfolio has an annual expected return of 10 percent and a standard deviation of 18 percent. What is the smallest expected loss over the next two years with a probability of 2.5 percent?

Compare and contrast how the Jensen and the Sharpe ratio evaluate management performance. Further discuss the most appropriate application of each.

A stock has a 2-year average return of 38.9 percent. What is the average annual return?

A Brief History of Risk and Return

Diversification and Risky Asset Allocation

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behaviour and Market Efficiency

Behavioural Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk and Security Management

Options

Option Valuation

Futures Contracts

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds and Mortgaged-Backed Securities

International Portfolio Investment

Filters

The Treynor ratio measures the _ per unit of ___ risk.

How do you interpret this VaR statistic: Prob (R_p $\le$ -0.09) = 23%?