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Question Answer
Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk? A. probability analysisB. raw return ratioC. risk assessmentD. performance evaluation D. performance evaluation
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? A. raw returnB. indexed returnC. real returnD. marginal returnE. absolute return A. raw return
The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures? A. raw returnB. Value at RiskC. Jensen's alphaD. Sharpe ratioE. Treynor ratio D. Sharpe ratio
Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta? A. raw returnB. Value at RiskC. Jensen's alphaD. Sharpe ratioE. Treynor ratio E. Treynor ratio
Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model? A. Sharpe ratioB. Treynor ratioC. Jensen's alphaD. betaE. Value at Risk C. Jensen's alpha
Which one of the following concerns a money manager's control over investment risks, particularly potential short-run losses? A. Alpha managementB. Normal distribution managementC. Investment risk management C. Investment risk management
Which one of the following assesses risk by stating the probability of a loss a portfolio might incur within a stated time period given a specific probability? A. Sharpe ratioB. Jensen's alphaC. Treynor ratioD. Value-at-Risk D. Value-at-Risk
Which one of the following is a statistical model, defined by its mean and standard deviation, that is used to assess probabilities? A. varianceB. normal distributionC. efficient frontierD. Value at Risk E. Jensen's alpha B. normal distribution
Which one of the following measures a security's return in relation to the total risk associated with that security? A. betaB. Jensen's alphaC. Sharpe ratioD. Treynor ratioE. Value at Risk C. Sharpe ratio
The Sharpe ratio measures a security's return relative to which one of the following? A. total riskB. diversifiable riskC. market rate of returnD. risk-free rateE. systematic risk A. total risk
The Sharpe ratio is best used to evaluate which one of the following? A. corporate bondsB. government bondsC. Treasury billsD. individual stocksE. diversified portfolios E. diversified portfolios
Which one of the following measures returns in relation to total risk? A. Treynor ratioB. Sharpe ratioC. Jensen's alphaD. Value at RiskE. beta B. Sharpe ratio
Which one of the following values would be the most preferable as a Sharpe ratio? A. -1.11B. -0.89C. 0.00D. .10E. 1.02 E. 1.02
Which one of the following measures risk premium in relation to systematic risk? A. Value at RiskB. Jensen's alphaC. betaD. Sharpe ratioE. Treynor ratio E. Treynor ratio
You are comparing three securities and discover they all have identical Treynor ratios. Given this information, which must be true ? A. They earn identical rewards per unit of total riskB. They earn identical rewards per unit of systematic risk B. They earn identical rewards per unit of systematic risk.
You are comparing three assets which have differing Treynor ratios. Given this, which one of the following must be true? A. The assets have differing rates of return.B. The preferred investment is the asset with the highest Treynor ratio. B. The preferred investment is the asset with the highest Treynor ratio.
You are considering the purchase of a mutual fund. You have found three funds that meet your basic criteria. Each fund has a different alpha. Which alpha indicates the preferred investment? A. the lowest positive alphaB. the highest positive alpha B. the highest positive alpha
Which one of the following statements is correct in relation to a security that has a negative Jensen's alpha? A. The security is overpriced and will plot below the SMLB. The security is overpriced and will plot above the SML A. The security is overpriced and will plot below the security market line.
Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model? A. beta of zero B. beta of 1.0C. alpha of zeroD. alpha of 1.0E. alpha of -1.0 C. alpha of zero
Tony brags that his portfolio's rate of return is "beating the market". Which one of the following would best substantiate his claim? A. positive Sharpe ratioB. negative Treynor ratioC. positive Jensen's alpha D. zero Value at Risk C. positive Jensen's alpha
Which of the following should generally only be used to evaluate relatively diversified portfolios rather than individual securities?I. Sharpe ratioII. Treynor ratioIII. Jensen's alpha A. I onlyB. II onlyC. III only A. I only
Which of the following measures are dependent upon the accuracy of a security's beta?I. Sharpe ratioII. Treynor ratioIII. Jensen's alpha A. I onlyB. II onlyC. I and II only D. II and III only D. II and III only
Which one of the following is probably the best measure of the performance of a well-diversified portfolio? A. Jensen's alphaB. Value at RiskC. Jensen-Treynor alphaD. Sharpe ratio E. Treynor ratio D. Sharpe ratio
Which of the following measures should be used to determine if a security should be included in a master portfolio?I. Sharpe ratioII. Treynor ratioIII. Jensen's alpha A. I onlyB. II onlyC. II and III only C. II and III only
The Jensen-Treynor alpha is equal to: A. the Treynor ratio divided by Jensen's alpha.B. the Treynor ratio multiplied by Jensen's alpha.C. Jensen's alpha divided by beta. C. Jensen's alpha divided by beta.
Which one of the following is measured by the Jensen-Treynor alpha? A. total return relative to systematic riskB. risk premium relative to systematicC. risk premium relative to total riskD. excess return relative to systematic risk D. excess return relative to systematic risk
The Sharpe-optimal portfolio will be the investment opportunity set which lies? B.the steepest slope when the line intersects the vertical axis at the risk-free rateC. the steepest slope when the line intersects the vertical axis at the origin B. the steepest slope when the line intersects the vertical axis at the risk-free rate
A Sharpe-optimal portfolio provides which one of the following for a given set of securities? A. highest excess return per unit of systematic riskB. highest risk premium per unit of total risk B. highest risk premium per unit of total risk
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. highest possible rate of returnB. Treynor-minimal portfolioC. Sharpe-optimal portfolio C. Sharpe-optimal portfolio
Which measure would you use to know whether alpha is truly significant or just the result of random chance? A. Jensen's alphaB. Information ratioC. Jensen-Treynor alphaD. Sharpe ratioE. Treynor ratio B. Information ratio
Which metric measures how volatile a fund's returns are relative to its benchmark? A. Jensen's alphaB. Information ratioC. Tracking errorD. Sharpe ratioE. Treynor ratio C. Tracking error
Which metric describes the percentage of a fund's movement which can be explained by movements in the market? A. Jensen's alphaB. Information ratioC. Tracking errorD. R SquaredE. Treynor ratio D. R Squared
Which one of the following is the primary purpose of the Value-at-Risk computation? A. determine the 99 percent probability B. evaluate the risk-return tradeoff for a given mix of securitiesC. evaluate the probability of a significant loss C. evaluate the probability of a significant loss
Which one of the following is the best interpretation of this VaR statistic: Prob (Rp ? -.15) = 37%? A. There is a 37 percent chance that your portfolio will DECLINE in valueB. There is a 37 percent chance that your portfolio will LOSE at A. There is a 37 percent chance that your portfolio will DECLINE in value by at least 15 percent over the next year.
The Value-at-Risk measure assumes which one of the following? A. returns are normally distributedB. portfolios lie on the efficient frontierC. all portfolios are fully diversifiedD. returns tend to follow repetitive patterns A. returns are normally distributed
Which one of the following Value-at-Risk measures would be most appropriate for a portfolio designed for a very risk-adverse investor? A. Prob (Rp ? – .20) = 100%B. Prob (Rp ? – .10) = 10%C. Prob (Rp ? – .05) = 1% C. Prob (Rp ? – .05) = 1%
Which one of the following statements is true concerning VaR? A. VaR only applies to time periods of one yearB. VaR applies only to time periods equal to or greater than one yearC. VaR values can be computed for monthly time periods C. VaR values can be computed for monthly time periods
Which of the following are related to VaR analysis?I. betaII. standard deviationIII. expected returnIV. time A. I and III onlyB. II and IV onlyC. I, III, and IV only C. I, III, and IV only
You have computed the expected return using VaR with a 2.5 percent probability for a one-year period of time? A. lower tail starting at the point that is 2.5 standard deviations below the meanB. lower tail of a 95 percent probability range B. lower tail of a 95 percent probability range
Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability? A. Prob[Rp,T ? E(Rp) ? v3 – 1.645 ? ?p v3]B. Prob[Rp,T ? E(Rp) ? 3 – 1.960 ? ?p v3]C. Prob[Rp,T ? E(Rp) ? v3 – 1.960 ? ?p 3] B. Prob[Rp,T ? E(Rp) ? 3 – 1.960 ? ?p v3]
A portfolio has a 2.5 percent chance of losing 16 percent or more according to the VaR when T = 1. This can be interpreted to mean that the portfolio is expected to have an annual loss of 16 percent or more once?A. 1.0B. 2.5C. 25D. 40 D. 40
A portfolio has an average return of 12.4 percent, a standard deviation of 15.8 percent, and a beta of 1.35. The risk-free rate is 2.6 percent. What is the Sharpe ratio? A. .49B. .52C. .62 D. .71E. .75 C. .62
A portfolio has a beta of 1.26, a standard deviation of 15.9 percent, and an average return of 15.07 percent. The market rate is 12.7 percent and the risk-free rate is 3.6 percent. What is the Sharpe ratio? A. .61B. .68C. .72D. .84E. .88 C. .72
The U.S. Treasury bill is yielding 2.25 percent and the market has an expected return of 9.8 percent. What is the Sharpe ratio of a portfolio that has a beta of 1.32 and a variance of .027556? A. .55B. .60C. .69D. .74E. .82 B. .60
A portfolio has a beta of 1.23 and a standard deviation of 11.6 percent. What is the Sharpe ratio if the market return is 12.4 percent and the market risk premium is 7.9 percent? A. .07B. .11C. .65D. .84E. .90 D. .84
A portfolio has a variance of .0165, a beta of 1.05, and an expected return of 12.65 percent. What is the Sharpe ratio if the expected risk-free rate is 3.4 percent? A. .66B. .70C. .72D. .82E. .86 C. .72
A portfolio has a Sharpe ratio of .80, a standard deviation of 17.4 percent, and an expected return of 15.9 percent. What is the risk-free rate? A. 1.98 percentB. 2.36 percentC. 2.48 percentD. 3.09 percentE. 3.15 percent A. 1.98 percent
Your portfolio has an expected return of 14.2 percent, a beta of 1.31, and a standard deviation of 15.3 percent. The U.S. Treasury bill rate is 3.48 percent. What is the Sharpe ratio of your portfolio? A. .65B. .67C. .70D. .77 C. .70
A portfolio has a beta of 1.16, a standard deviation of 12.2 percent, and an expected return of 11.55 percent. The market return is 10.4 percent and the risk-free rate is 3.2 percent. What is the portfolio's Sharpe ratio? A. .57B. .68C. .73 B. .68
Your portfolio has a beta of 1.17, a standard deviation of 14.3 percent, and an expected return of 12.5 percent. The market return is 11.3 percent and the risk-free rate is 3.1 percent. What is the Treynor ratio? A. .015B. .080C. .109 B. .080
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? A. .093B. .138C. .146D. .835E. .951 A. .093
A portfolio has a Treynor ratio of .070, a standard deviation of 16.40 percent, a beta of 1.16, and an expected return of 14.3 percent. What is the risk-free rate? A. 1.32 percentB. 5.21 percentC. 5.39 percentD. 6.18 percent D. 6.18 percent
A portfolio has a variance of .027556, a beta of 1.54, and an expected return of 11.2 percent. What is the Treynor ratio if the expected risk-free rate is 2.7 percent? A. .055B. .063C. .367D. .498E. .512 A. .055
The U.S. Treasury bill is yielding 3.0 percent and the market has an expected return of 11.6 percent. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.02, and a standard deviation of 12.2 percent? A. .074B. .086 B. .086
A portfolio has an average return of 9.7 percent, a standard deviation of 8.6 percent, and a beta of .72. The risk-free rate is 2.1 percent. What is the Treynor ratio? A. .098B. .106C. .121D. .636E. .884 B. .106
A portfolio has a standard deviation of 14.1 percent, a beta of 1.30 and a Treynor ratio of .094. The risk-free rate is 3.2 percent. What is the portfolio's expected rate of return? A. 14.83 percentB. 15.25 percentC. 15.42 percent C. 15.42 percent
The U.S. Treasury bill is yielding 1.85 percent and the market has an expected return of 7.48 percent. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.33 and a variance of .0045? A. .056B. .064C. .069 A. .056
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 on is 12.1 percent and the beta is .93? A. -2.96 percentB. -2.40 percent B. -2.40 percent
A portfolio has a beta of 1.52 and an actual return of 13.7 percent. The risk-free rate is 2.7 percent and the market risk premium is 7.8 percent. What is the value of Jensen's alpha? A. -0.86 percentB. 1.01 percentC. 1.14 percent A. -0.86 percent
The U.S. Treasury bill has a return of 2.84 percent while the S&P 500 is returning 10.84 percent. Your portfolio has an actual return of 14.76 percent and a beta of 1.31. What is the portfolio's Jensen's alpha? A. 1.37 percentB. 1.44 percent B. 1.44 percent
A diversified portfolio has a beta of 1.47 and a raw return of 14.28 percent. The market return is 11.74 percent and the market risk premium is 7.85 percent. What is Jensen's alpha of the portfolio? A. -1.15 percentB. -0.86 percent A. -1.15 percent
A portfolio has an actual return of 15.17 percent, a beta of .85, and a standard deviation of 7.2 percent. The market return is 13.4 percent and the risk-free rate is 2.8 percent. What is the portfolio's JA?A. 2.67 percentB. 3.36 percent B. 3.36 percent
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? A. 16.8 percentB. 19.6 percentC. 21.9 percent C. 21.9 percent
What is the Treynor ratio of a portfolio comprised of 45 percent portfolio A and 55 percent portfolio B?A. .041B. .058C. .069D. .114E. .136 C. .069
What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A, 35 percent portfolio B, and 40 percent portfolio C?A. .054B. .062C. .070D. .081E. .102 C. .070
What is Jensen's alpha of a portfolio comprised of 45 percent portfolio A and 55 percent of portfolio B?The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent. A. 1.08 percentB. 1.46 percentC. 2.04 percent C. 2.04 percent
A stock has a return of 16.18 percent and a beta of 1.47. The market return is 10.65 percent and the risk-free rate is 3.20 percent. What is the Jensen-Treynor alpha of this stock? A. -0.17 percentB. 0.66 percentC. 1.38 percent C. 1.38 percent
A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.50. The risk-free rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha A. 0.89 percentB. 1.05 percent B. 1.05 percent
A portfolio consists of the following two funds. Fund A 13%, Fund B 9%.What is the Sharpe ratio of the portfolio? A. .39B. .45C. .52D. .60E. .64 D. .60
A portfolio consists of the following two funds. fund A $8,000, fund B $12,000. What is the Sharpe ratio of the portfolio? A. 0.422B. 0.547C. 0.645D. 0.721E. 0.798 C. 0.645
A portfolio consists of the following two funds. Fund A "?", fund B 9%.What is the expected return on fund A? A. 12.0 percentB. 13.3 percentC. 13.7 percentD. 14.5 percentE. 15.7 percent E. 15.7 percent
A fund has an alpha of 0.73 percent and a tracking error of 4.9 percent. What is the fund's information ratio? A. 0.112B. 0.135C. 0.149D. 0.208E. 0.229 C. 0.149
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? A. 35 percentB. 42 percentC. 51 percentD. 65 percentE. 71 percent B. 42 percent
A portfolio has an average return of 14.2 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.A. -19.53B. -17.24C. -15.68D. -1.710E. -1.550 A. -19.53
A portfolio has a standard deviation of 15.8 percent and an average return of 14.2 percent. What loss is associated with a 2.5 percent probability?A. -12.03 percentB. -14.87 percentC. -16.77 percentD. -17.38 percent C. -16.77 percent
Your portfolio has a standard deviation of 12.3 percent and an average return of 9.6 percent. You have a 5 percent probability of losing _____ percent or more in any given year.A. -33.79B. -31.54C. -12.59D. -10.63E. -3.34 D. -10.63
Lester has a portfolio with an average return of 12.8 percent and a standard deviation of 9.1 percent. He has a one percent probability of losing _____ percent or more in any given year.A. -33.97B. -38.87C. -20.67D. -5.04E. -8.37 E. -8.37
You have a portfolio which has an average return of 10.3 percent. In any given year, you have a 2.5 percent probability of earning either a zero or a negative annual return. What is the STDEV?A. 5.26 percentB. 6.43 percent A. 5.26 percent
Your portfolio has an expected annual return of 11.6 percent. What is the two-year expected return? A. 11.60 percentB. 14.65 percentC. 16.40 percentD. 21.60 percentE. 23.20 percent E. 23.20 percent
Angie owns a portfolio which has an expected annual return of 11.70 percent. What is the two-year expected return on her portfolio? A. 13.80 percentB. 19.52 percentC. 23.40 percentD. 27.60 percent C. 23.40 percent
Mike's portfolio has a two-year expected return of 21.70 percent. What is the expected return for one year? A. 10.85 percentB. 12.50 percentC. 13.33 percentD. 14.22 percentE. 15.34 percent A. 10.85 percent
The one-year standard deviation of your portfolio is 14.8 percent. What is the two-year standard deviation? A. 16.47 percentB. 18.23 percentC. 20.93 percentD. 25.41 percent C. 20.93 percent
Your portfolio has a standard deviation of 11.7 percent. What is the two-year standard deviation? A. 14.87 percentB. 15.80 percentC. 16.55 percent C. 16.55 percent
A portfolio has a 3-year standard deviation of 18.1 percent. What is the one-year standard deviation? A. 6.39 percentB. 8.69 percentC. 10.45 percentD. 11.80 percent C. 10.45 percent
A stock has an annual standard deviation of 14.1 percent and an expected annual return of 11.5 percent. What is the smallest expected loss for the next 6 months given a probability of 2.5 percent? A. -8.90 percentB. -13.79 percent B. -13.79 percent
Trailer Co. stock has an expected return of 12.2 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? A. -4.59 percentB. -6.09 percentC. -7.27 percent A. -4.59 percent
A portfolio has an expected annual return of 15.7 percent and a standard deviation of 19.6 percent. What is the smallest expected loss over the next calendar quarter given a probability of 1 percent? A. -18.08 percentB. -18.87 percent B. -18.87 percent
High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 20.3 percent. What is the smallest expected loss over the next month given a probability of 2.5 percent? A. -8.67 percentB. -10.14 percent B. -10.14 percent

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