Question 1

Which one of the following measures a security's return in relation to the total risk associated with that security?

Accepted Answer

A)  beta 
B)  Jensen's alpha 
C)  Sharpe ratio 
D)  Treynor ratio 
E)  Value at Risk 
A)  beta 
B)  Jensen's alpha 
C)  Sharpe ratio 
D)  Treynor ratio 
E)  Value at Risk

Question 2

A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The risk-free rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?

Accepted Answer

A)  -1.37 percent 
B)  -1.09 percent 
C)  -0.48 percent 
D)  0.29 percent 
E)  0.63 percent 
A)  -1.37 percent 
B)  -1.09 percent 
C)  -0.48 percent 
D)  0.29 percent 
E)  0.63 percent

Question 3

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 4

Which metric describes the percentage of a fund's movement which 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 5

Which one of the following is measured by the Jensen-Treynor alpha?

Accepted Answer

A)  total return relative to systematic risk 
B)  risk premium relative to systematic 
C)  risk premium relative to total risk 
D)  excess return relative to systematic risk 
E)  excess return relative to total risk 
A)  total return relative to systematic risk 
B)  risk premium relative to systematic 
C)  risk premium relative to total risk 
D)  excess return relative to systematic risk 
E)  excess return relative to total risk

Question 6

A portfolio has an average return of 15.3 percent and a standard deviation of 14.5 percent. Given this, you should expect to lose at least _____ percent on an annual basis once every century.

Accepted Answer

A)  18.43 
B)  16.24 
C)  14.68 
D)  1.710 
E)  1.550 
A)  18.43 
B)  16.24 
C)  14.68 
D)  1.710 
E)  1.550

Question 7

A conservative investor has a well-diversified portfolio but is still concerned about two things. First, he is concerned about the downside risk and secondly, he is concerned whether he is earning a sufficient rate of return to compensate for the total risk he is assuming. How could you quantify these concerns for this investor?

Accepted Answer

To quantify the downside risk for the co

Question 8

Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?

Accepted Answer

A)  Sharpe ratio 
B)  Treynor ratio 
C)  Jensen's alpha 
D)  beta 
E)  Value at Risk 
A)  Sharpe ratio 
B)  Treynor ratio 
C)  Jensen's alpha 
D)  beta 
E)  Value at Risk

Question 9

You are comparing three securities and discover they all have identical Treynor ratios. Given this information, which one of the following must be true regarding these three securities?

Accepted Answer

A)  They have identical betas. 
B)  They have the same rates of return. 
C)  They earn identical rewards per unit of total risk. 
D)  They earn identical rewards per unit of systematic risk. 
E)  They have identical Sharpe ratios also. 
A)  They have identical betas. 
B)  They have the same rates of return. 
C)  They earn identical rewards per unit of total risk. 
D)  They earn identical rewards per unit of systematic risk. 
E)  They have identical Sharpe ratios also.

Question 10

Which one of the following statements is correct in relation to a security that has a negative Jensen's alpha?

Accepted Answer

A)  The security is overpriced and will plot below the security market line. 
B)  The security is overpriced and will plot above the security market line. 
C)  The security is underpriced and will plot below the security market line. 
D)  The security is underpriced and will plot above the security market line. 
E)  The security is incorrectly priced but you cannot tell if it is underpriced or overpriced based on the information provided. 
A)  The security is overpriced and will plot below the security market line. 
B)  The security is overpriced and will plot above the security market line. 
C)  The security is underpriced and will plot below the security market line. 
D)  The security is underpriced and will plot above the security market line. 
E)  The security is incorrectly priced but you cannot tell if it is underpriced or overpriced based on the information provided.

Question 11

What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A, 35 percent portfolio B, and 40 percent portfolio C?   The risk-free rate is 3.6 percent and the market risk premium is 8.2 percent.

Accepted Answer

A)  .054 
B)  .062 
C)  .070 
D)  .081 
E)  .102 
A)  .054 
B)  .062 
C)  .070 
D)  .081 
E)  .102

Which one of the following measures a security's return in relation to the total risk associated with that security?

A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The risk-free rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?

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

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

Which one of the following is measured by the Jensen-Treynor alpha?

A portfolio has an average return of 15.3 percent and a standard deviation of 14.5 percent. Given this, you should expect to lose at least _____ percent on an annual basis once every century.

Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?

You are comparing three securities and discover they all have identical Treynor ratios. Given this information, which one of the following must be true regarding these three securities?

Which one of the following statements is correct in relation to a security that has a negative Jensen's alpha?

What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A, 35 percent portfolio B, and 40 percent portfolio C? The risk-free rate is 3.6 percent and the market risk premium is 8.2 percent.

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

Which one of the following measures a security's return in relation to the total risk associated with that security?

A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The risk-free rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock?

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

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

Which one of the following is measured by the Jensen-Treynor alpha?

A portfolio has an average return of 15.3 percent and a standard deviation of 14.5 percent. Given this, you should expect to lose at least _____ percent on an annual basis once every century.

Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?

You are comparing three securities and discover they all have identical Treynor ratios. Given this information, which one of the following must be true regarding these three securities?

Which one of the following statements is correct in relation to a security that has a negative Jensen's alpha?

What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A, 35 percent portfolio B, and 40 percent portfolio C? The risk-free rate is 3.6 percent and the market risk premium is 8.2 percent.

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