Question 1

Which of the following is the technique employed by a passive portfolio management strategy?

Accepted Answer

A)  Quantitative screens 
B)  Full replication 
C)  Use of factor models 
D)  Sector rotation 
E)  None of the above 
A)  Quantitative screens 
B)  Full replication 
C)  Use of factor models 
D)  Sector rotation 
E)  None of the above

Question 2

Suppose that portfolio Y has a 20% return and 22% standard deviation. Market portfolio has a 15% return and 15% standard deviation. The annual risk-free rate is 5%. What is the M2 measure?

Accepted Answer

A)  0.57% 
B)  -1.5% 
C)  0.23% 
D)  8.0% 
E)  -0.75% 
A)  0.57% 
B)  -1.5% 
C)  0.23% 
D)  8.0% 
E)  -0.75%

Question 3

Which of the following performance measures is best used to analyze a well diversified portfolio?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha

Accepted Answer

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

Question 4

The mean of the normal distribution is _________ and the standard deviation is __________.

Accepted Answer

A)  0; 0 
B)  0; 1 
C)  1; 1 
D)  1; 0 
E)  1; 2 
A)  0; 0 
B)  0; 1 
C)  1; 1 
D)  1; 0 
E)  1; 2

Question 5

You are comparing three portfolios that have differing Treynor ratios. Given this, you

Accepted Answer

A)  Know that the portfolio with the lowest Treynor ratio is under-priced 
B)  Should invest in the portfolio with the highest Treynor ratio 
C)  Can safely assume that the portfolios have differing levels of total risk 
D)  Know the portfolios are all mis-priced 
E)  Can safely assume that the portfolios have differing levels of market risk 
A)  Know that the portfolio with the lowest Treynor ratio is under-priced 
B)  Should invest in the portfolio with the highest Treynor ratio 
C)  Can safely assume that the portfolios have differing levels of total risk 
D)  Know the portfolios are all mis-priced 
E)  Can safely assume that the portfolios have differing levels of market risk

Question 6

While you can lend at the risk-free rate but cannot borrow at that rate, your choice of a complete portfolio is

Accepted Answer

A)  unaffected at all levels of risk. 
B)  separate from the shape of the Markowitz efficient frontier. 
C)  unaffected at low levels of risk but restricted at high levels of risk. 
D)  restricted at low levels of risk but unaffected at high levels of risk. 
E)  none of the above 
A)  unaffected at all levels of risk. 
B)  separate from the shape of the Markowitz efficient frontier. 
C)  unaffected at low levels of risk but restricted at high levels of risk. 
D)  restricted at low levels of risk but unaffected at high levels of risk. 
E)  none of the above

Question 7

You are a very conservative investor and thus want to keep a low risk portfolio. Which one of the following VaR measures would be best for your investment goal?

Accepted Answer

A)  Prob (Rp $\le$ -0.09) = 100% 
B)  Prob (Rp $\le$-0.09) = 50% 
C)  Prob (Rp $\le$ -0.09) = 25% 
D)  Prob (Rp $\le$-0.09) = 10% 
E)  Prob (Rp $\le$-0.09) = 1% 
A)  Prob (Rp $\le$ -0.09) = 100% 
B)  Prob (Rp $\le$-0.09) = 50% 
C)  Prob (Rp $\le$ -0.09) = 25% 
D)  Prob (Rp $\le$-0.09) = 10% 
E)  Prob (Rp $\le$-0.09) = 1%

Question 8

_________ assesses risk by stating the probability of a loss a portfolio that might be incurred within a stated time period given a specified probability.

Accepted Answer

A)  Investment risk management 
B)  Market simulation 
C)  Value-at-risk 
D)  Back testing 
E)  Performance evaluation 
A)  Investment risk management 
B)  Market simulation 
C)  Value-at-risk 
D)  Back testing 
E)  Performance evaluation

Question 9

Your portfolio has an annualized standard deviation of 17.8% and average annual return of 13.6%. You have a 1% probability of losing ________ or more in any given year. Note: the 1% probability level has a "Z" value of 2.326.

Accepted Answer

A)  27.80% 
B)  21.29% 
C)  18.47% 
D)  13.38% 
E)  8.86% 
A)  27.80% 
B)  21.29% 
C)  18.47% 
D)  13.38% 
E)  8.86%

Question 10

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 Treynor ratio for the portfolio?

Accepted Answer

A)  0.0701 
B)  0.0667 
C)  0.0775 
D)  0.0810 
E)  0.0725 
A)  0.0701 
B)  0.0667 
C)  0.0775 
D)  0.0810 
E)  0.0725

Question 11

The major difference between the Sharpe ratio and the Treynor ratio is that the Sharpe ratio analyzes _________ risk and the Treynor ratio analyzes ___________ risk.

Accepted Answer

A)  total; total 
B)  total; systematic 
C)  systematic; systematic 
D)  systematic; total 
E)  None of the above. 
A)  total; total 
B)  total; systematic 
C)  systematic; systematic 
D)  systematic; total 
E)  None of the above.

Question 12

The risk premium of a portfolio divided by the portfolio's standard deviation is called

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 13

Hermitage stock has an expected return of 13 percent and an annual standard deviation of 41 percent. What is the smallest expected loss over the next year with a probability of 5 percent? The relevant "Z" value is 1.645.

Accepted Answer

A)  -38.26% 
B)  -54.45% 
C)  -42.05% 
D)  -48.32% 
E)  -40.23% 
A)  -38.26% 
B)  -54.45% 
C)  -42.05% 
D)  -48.32% 
E)  -40.23%

Question 14

The Sharpe ratio is best utilized for evaluating

Accepted Answer

A)  Bonds 
B)  Low-risk stocks 
C)  High-risk stocks 
D)  Government securities 
E)  Well-diversified portfolios 
A)  Bonds 
B)  Low-risk stocks 
C)  High-risk stocks 
D)  Government securities 
E)  Well-diversified portfolios

Which of the following is the technique employed by a passive portfolio management strategy?

Suppose that portfolio Y has a 20% return and 22% standard deviation. Market portfolio has a 15% return and 15% standard deviation. The annual risk-free rate is 5%. What is the M² measure?

Which of the following performance measures is best used to analyze a well diversified portfolio? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

The mean of the normal distribution is _ and the standard deviation is __.

You are comparing three portfolios that have differing Treynor ratios. Given this, you

While you can lend at the risk-free rate but cannot borrow at that rate, your choice of a complete portfolio is

You are a very conservative investor and thus want to keep a low risk portfolio. Which one of the following VaR measures would be best for your investment goal?

_________ assesses risk by stating the probability of a loss a portfolio that might be incurred within a stated time period given a specified probability.

Your portfolio has an annualized standard deviation of 17.8% and average annual return of 13.6%. You have a 1% probability of losing ________ or more in any given year. Note: the 1% probability level has a "Z" value of 2.326.

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 Treynor ratio for the portfolio?

The major difference between the Sharpe ratio and the Treynor ratio is that the Sharpe ratio analyzes _ risk and the Treynor ratio analyzes ___ risk.

The risk premium of a portfolio divided by the portfolio's standard deviation is called

Hermitage stock has an expected return of 13 percent and an annual standard deviation of 41 percent. What is the smallest expected loss over the next year with a probability of 5 percent? The relevant "Z" value is 1.645.

The Sharpe ratio is best utilized for evaluating

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

Which of the following is the technique employed by a passive portfolio management strategy?

Suppose that portfolio Y has a 20% return and 22% standard deviation. Market portfolio has a 15% return and 15% standard deviation. The annual risk-free rate is 5%. What is the M2 measure?

Which of the following performance measures is best used to analyze a well diversified portfolio? I. Treynor ratio II. Sharpe ratio III. Jensen's alpha

The mean of the normal distribution is _________ and the standard deviation is __________.

You are comparing three portfolios that have differing Treynor ratios. Given this, you

While you can lend at the risk-free rate but cannot borrow at that rate, your choice of a complete portfolio is

You are a very conservative investor and thus want to keep a low risk portfolio. Which one of the following VaR measures would be best for your investment goal?

_________ assesses risk by stating the probability of a loss a portfolio that might be incurred within a stated time period given a specified probability.

Your portfolio has an annualized standard deviation of 17.8% and average annual return of 13.6%. You have a 1% probability of losing ________ or more in any given year. Note: the 1% probability level has a "Z" value of 2.326.

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 Treynor ratio for the portfolio?

The major difference between the Sharpe ratio and the Treynor ratio is that the Sharpe ratio analyzes _________ risk and the Treynor ratio analyzes ___________ risk.

The risk premium of a portfolio divided by the portfolio's standard deviation is called

Hermitage stock has an expected return of 13 percent and an annual standard deviation of 41 percent. What is the smallest expected loss over the next year with a probability of 5 percent? The relevant "Z" value is 1.645.

The Sharpe ratio is best utilized for evaluating

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

Suppose that portfolio Y has a 20% return and 22% standard deviation. Market portfolio has a 15% return and 15% standard deviation. The annual risk-free rate is 5%. What is the M² measure?

The mean of the normal distribution is _ and the standard deviation is __.

The major difference between the Sharpe ratio and the Treynor ratio is that the Sharpe ratio analyzes _ risk and the Treynor ratio analyzes ___ risk.