Question 1

The one-year standard deviation of your portfolio is 16.4 percent. What is the two-year standard deviation?

Accepted Answer

A)  17.47 percent 
B)  19.23 percent 
C)  23.19 percent 
D)  25.41 percent 
E)  27.20 percent 
A)  17.47 percent 
B)  19.23 percent 
C)  23.19 percent 
D)  25.41 percent 
E)  27.20 percent

Question 2

A portfolio has an expected return of 13.8 percent, a beta of 1.14, and a standard deviation of 12.7 percent. The U.S. Treasury bill rate is 3.2 percent. 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 3

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

Accepted Answer

A)  determine the 99 percent 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 percent 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 4

A portfolio has a variance of .017424, a beta of 1.06, and an expected return of 13.15 percent. What is the Sharpe ratio if the expected risk-free rate is 3.4 percent?

Accepted Answer

A)  .66 
B)  .70 
C)  .74 
D)  .82 
E)  .86 
A)  .66 
B)  .70 
C)  .74 
D)  .82 
E)  .86

Question 5

The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?

Accepted Answer

A)  raw return 
B)  indexed return 
C)  real return 
D)  marginal return 
E)  absolute return 
A)  raw return 
B)  indexed return 
C)  real return 
D)  marginal return 
E)  absolute return

Question 6

Which metric measures how volatile a fund's returns are relative to its benchmark?

Accepted Answer

A)  Jensen's alpha 
B)  Information ratio 
C)  Tracking error 
D)  Sharpe ratio 
E)  Treynor ratio 
A)  Jensen's alpha 
B)  Information ratio 
C)  Tracking error 
D)  Sharpe ratio 
E)  Treynor ratio

Question 7

Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model?

Accepted Answer

A)  beta of zero 
B)  beta of 1.0 
C)  alpha of zero 
D)  alpha of 1.0 
E)  alpha of -1.0 
A)  beta of zero 
B)  beta of 1.0 
C)  alpha of zero 
D)  alpha of 1.0 
E)  alpha of -1.0

Question 8

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 9

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

Accepted Answer

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

Question 10

Explain the similarities and differences between the Sharpe and Treynor ratios. Also, explain the most appropriate application for each.

Accepted Answer

The Sharpe ratio and Treynor ratio are b

Question 11

You want to create the best portfolio that can be derived from two assets. Which one of the following will help you identify that portfolio?

Accepted Answer

A)  highest portfolio beta 
B)  market equivalent level of risk 
C)  highest possible rate of return 
D)  Treynor-minimal portfolio 
E)  Sharpe-optimal portfolio 
A)  highest portfolio beta 
B)  market equivalent level of risk 
C)  highest possible rate of return 
D)  Treynor-minimal portfolio 
E)  Sharpe-optimal portfolio

Question 12

A portfolio has a Jensen's alpha of 0.82 percent, a beta of 1.40, and a CAPM expected return of 13.7 percent. The risk-free rate is 2.5 percent. What is the actual return of the portfolio?

Accepted Answer

A)  15.5 percent 
B)  16.1 percent 
C)  16.8 percent 
D)  19.6 percent 
E)  21.9 percent 
A)  15.5 percent 
B)  16.1 percent 
C)  16.8 percent 
D)  19.6 percent 
E)  21.9 percent

Question 13

High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 22.3 percent. What is the smallest expected loss over the next month given a probability of 2.5 percent?

Accepted Answer

A)  -6.64 percent 
B)  -8.67 percent 
C)  -11.28 percent 
D)  -12.12 percent 
E)  -15.13 percent 
A)  -6.64 percent 
B)  -8.67 percent 
C)  -11.28 percent 
D)  -12.12 percent 
E)  -15.13 percent

Question 14

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 15

Trailer Co. stock has an expected return of 11.8 percent and a standard deviation of 11.8 percent. What is the smallest expected loss over the next month given a probability of 5 percent?

Accepted Answer

A)  -4.62 percent 
B)  -6.09 percent 
C)  -7.27 percent 
D)  -11.49 percent 
E)  -13.77 percent 
A)  -4.62 percent 
B)  -6.09 percent 
C)  -7.27 percent 
D)  -11.49 percent 
E)  -13.77 percent

Question 16

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 17

Your portfolio actually earned 6.2 percent for the year. You were expecting to earn 8.6 percent based on the CAPM formula. What is Jensen's alpha if the portfolio standard deviation is 11.2 percent and the beta is .87?

Accepted Answer

A)  -3.91 percent 
B)  -3.40 percent 
C)  -2.96 percent 
D)  -2.40 percent 
E)  -1.87 percent 
A)  -3.91 percent 
B)  -3.40 percent 
C)  -2.96 percent 
D)  -2.40 percent 
E)  -1.87 percent

Question 18

A portfolio consists of the following two funds.   What is the Sharpe ratio of the portfolio?

Accepted Answer

A)  0.42 
B)  0.54 
C)  0.60 
D)  0.72 
E)  0.79 
A)  0.42 
B)  0.54 
C)  0.60 
D)  0.72 
E)  0.79

Question 19

Explain a key advantage and a key disadvantage of Jensen's alpha.

Accepted Answer

Jensen's alpha is a measure used to eval

Question 20

A Sharpe-optimal portfolio provides which one of the following for a given set of securities?

Accepted Answer

A)  Jensen's Alpha 
B)  highest possible level of risk 
C)  highest level of return for a market-equivalent level of risk 
D)  highest excess return per unit of systematic risk 
E)  highest risk premium per unit of total risk 
A)  Jensen's Alpha 
B)  highest possible level of risk 
C)  highest level of return for a market-equivalent level of risk 
D)  highest excess return per unit of systematic risk 
E)  highest risk premium per unit of total risk

The one-year standard deviation of your portfolio is 16.4 percent. What is the two-year standard deviation?

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

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

A portfolio has a variance of .017424, a beta of 1.06, and an expected return of 13.15 percent. What is the Sharpe ratio if the expected risk-free rate is 3.4 percent?

The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?

Which metric measures how volatile a fund's returns are relative to its benchmark?

Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model?

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

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

Explain the similarities and differences between the Sharpe and Treynor ratios. Also, explain the most appropriate application for each.

You want to create the best portfolio that can be derived from two assets. Which one of the following will help you identify that portfolio?

A portfolio has a Jensen's alpha of 0.82 percent, a beta of 1.40, and a CAPM expected return of 13.7 percent. The risk-free rate is 2.5 percent. What is the actual return of the portfolio?

High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 22.3 percent. What is the smallest expected loss over the next month given a probability of 2.5 percent?

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

Trailer Co. stock has an expected return of 11.8 percent and a standard deviation of 11.8 percent. What is the smallest expected loss over the next month given a probability of 5 percent?

Which one of the following statements is true concerning VaR?

Your portfolio actually earned 6.2 percent for the year. You were expecting to earn 8.6 percent based on the CAPM formula. What is Jensen's alpha if the portfolio standard deviation is 11.2 percent and the beta is .87?

A portfolio consists of the following two funds. What is the Sharpe ratio of the portfolio?

Explain a key advantage and a key disadvantage of Jensen's alpha.

A Sharpe-optimal portfolio provides which one of the following for a given set of securities?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters

Exam 13: Performance Evaluation and Risk Management

The one-year standard deviation of your portfolio is 16.4 percent. What is the two-year standard deviation?

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

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

A portfolio has a variance of .017424, a beta of 1.06, and an expected return of 13.15 percent. What is the Sharpe ratio if the expected risk-free rate is 3.4 percent?

The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?

Which metric measures how volatile a fund's returns are relative to its benchmark?

Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model?

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

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

Explain the similarities and differences between the Sharpe and Treynor ratios. Also, explain the most appropriate application for each.

You want to create the best portfolio that can be derived from two assets. Which one of the following will help you identify that portfolio?

A portfolio has a Jensen's alpha of 0.82 percent, a beta of 1.40, and a CAPM expected return of 13.7 percent. The risk-free rate is 2.5 percent. What is the actual return of the portfolio?

High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 22.3 percent. What is the smallest expected loss over the next month given a probability of 2.5 percent?

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

Trailer Co. stock has an expected return of 11.8 percent and a standard deviation of 11.8 percent. What is the smallest expected loss over the next month given a probability of 5 percent?

Which one of the following statements is true concerning VaR?

Your portfolio actually earned 6.2 percent for the year. You were expecting to earn 8.6 percent based on the CAPM formula. What is Jensen's alpha if the portfolio standard deviation is 11.2 percent and the beta is .87?

A portfolio consists of the following two funds. What is the Sharpe ratio of the portfolio?

Explain a key advantage and a key disadvantage of Jensen's alpha.

A Sharpe-optimal portfolio provides which one of the following for a given set of securities?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters