Question 1

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

Question 2

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

Question 3

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

Question 4

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.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Accepted Answer

Jensen's alpha is a measure used to eval...

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Exam 13: Performance Evaluation and Risk Management

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?

Correct AnswerverifiedShow Answer

Which one of the following statements is true concerning VaR?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerAnswered by ExamLex AIJensen's alpha is a measure used to eval...View AnswerShow Answer

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

Correct AnswerAnswered by ExamLex AIThe Sharpe ratio and Treynor ratio are b...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
Answered by ExamLex AI
Jensen's alpha is a measure used to eval...
View Answer

Correct Answer
Answered by ExamLex AI
The Sharpe ratio and Treynor ratio are b...
View Answer