Question 1

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 C

Question 2

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.

Accepted Answer

A)  −33.79 
B)  −31.54 
C)  −12.59 
D)  −10.63 
E)  −3.34 
A)  −33.79 
B)  −31.54 
C)  −12.59 
D)  −10.63 
E)  −3.34 D

Question 3

Which one of the following concerns a money manager's control over investment risks,particularly potential short-run losses?

Accepted Answer

A)  Alpha management 
B)  Normal distribution management 
C)  Investment risk management 
D)  Raw return distributions 
E)  Volatility performance measures 
A)  Alpha management 
B)  Normal distribution management 
C)  Investment risk management 
D)  Raw return distributions 
E)  Volatility performance measures C

Question 4

Mike's portfolio has a two-year expected return of 21.70 percent.What is the expected return for one year?

Accepted Answer

A)  10.85 percent 
B)  12.50 percent 
C)  13.33 percent 
D)  14.22 percent 
E)  15.34 percent 
A)  10.85 percent 
B)  12.50 percent 
C)  13.33 percent 
D)  14.22 percent 
E)  15.34 percent

Question 5

The U.S.Treasury bill is yielding 2.5 percent and the market has an expected return of 9.0 percent.What is the Sharpe ratio of a portfolio that has a beta of 1.25 and a variance of 0.0218?

Accepted Answer

A)  0.55 
B)  0.60 
C)  0.69 
D)  0.74 
E)  0.82 
A)  0.55 
B)  0.60 
C)  0.69 
D)  0.74 
E)  0.82

Question 6

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

Accepted Answer

A)  0.422 
B)  0.547 
C)  0.648 
D)  0.721 
E)  0.798 
A)  0.422 
B)  0.547 
C)  0.648 
D)  0.721 
E)  0.798

Question 7

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A,25 percent portfolio B,and The risk-free rate is 2.5 percent and the market risk premium is 8.4 percent.

Accepted Answer

A)  0.057 
B)  0.063 
C)  0.076 
D)  0.081 
E)  0.094 
A)  0.057 
B)  0.063 
C)  0.076 
D)  0.081 
E)  0.094

Question 8

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 approximate standard deviation of your portfolio?

Accepted Answer

A)  5.26 percent 
B)  6.43 percent 
C)  6.94 percent 
D)  7.60 percent 
E)  8.14 percent 
A)  5.26 percent 
B)  6.43 percent 
C)  6.94 percent 
D)  7.60 percent 
E)  8.14 percent

Question 9

A portfolio has an average return of 9.7 percent,a standard deviation of 8.6 percent,and a beta of 0.72.The risk-free rate is 2.1 percent.What is the Treynor ratio?

Accepted Answer

A)  0.098 
B)  0.106 
C)  0.121 
D)  0.636 
E)  0.884 
A)  0.098 
B)  0.106 
C)  0.121 
D)  0.636 
E)  0.884

Question 10

A portfolio has a beta of 1.25 and an actual return of 13.0 percent.The risk-free rate is 4.50 percent and the market risk premium is 8.2 percent.What is the value of Jensen's alpha?

Accepted Answer

A)  −0.86 
B)  −1.01 
C)  −1.14 
D)  −1.25 
E)  −1.34 
A)  −0.86 
B)  −1.01 
C)  −1.14 
D)  −1.25 
E)  −1.34

Question 11

The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?

Accepted Answer

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

Question 12

Your portfolio has an expected annual return of 11.6 percent.What is the two-year expected return?

Accepted Answer

A)  11.60 percent 
B)  14.65 percent 
C)  16.40 percent 
D)  21.60 percent 
E)  23.20 percent 
A)  11.60 percent 
B)  14.65 percent 
C)  16.40 percent 
D)  21.60 percent 
E)  23.20 percent

Question 13

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.

Accepted Answer

A)  −1.25 percent 
B)  0.47 percent 
C)  1.08 percent 
D)  1.46 percent 
E)  2.04 percent 
A)  −1.25 percent 
B)  0.47 percent 
C)  1.08 percent 
D)  1.46 percent 
E)  2.04 percent

Question 14

Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability?

Accepted Answer

A)  Prob[Rp,T ≤ E(Rp) × 3 - 1.645 × σp √3] 
B)  Prob[Rp,T ≤ E(Rp) × √3 - 1.645 × σp 3] 
C)  Prob[Rp,T ≤ E(Rp) × √3 - 1.645 × σp √3] 
D)  Prob[Rp,T ≤ E(Rp) × 3 - 1.960 × σp √3] 
E)  Prob[Rp,T ≤ E(Rp) × √3 - 1.960 × σp 3] 
A)  Prob[Rp,T ≤ E(Rp) × 3 - 1.645 × σp √3] 
B)  Prob[Rp,T ≤ E(Rp) × √3 - 1.645 × σp 3] 
C)  Prob[Rp,T ≤ E(Rp) × √3 - 1.645 × σp √3] 
D)  Prob[Rp,T ≤ E(Rp) × 3 - 1.960 × σp √3] 
E)  Prob[Rp,T ≤ E(Rp) × √3 - 1.960 × σp 3]

Question 15

Your portfolio has a standard deviation of 11.7 percent.What is the two-year standard deviation?

Accepted Answer

A)  14.87 percent 
B)  15.83 percent 
C)  16.55 percent 
D)  23.48 percent 
E)  24.15 percent 
A)  14.87 percent 
B)  15.83 percent 
C)  16.55 percent 
D)  23.48 percent 
E)  24.15 percent

Question 16

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 12.1 percent and the beta is 0.93?

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 17

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

Accepted Answer

A)  0.422 
B)  0.547 
C)  0.645 
D)  0.721 
E)  0.798 
A)  0.422 
B)  0.547 
C)  0.645 
D)  0.721 
E)  0.798

Question 18

A portfolio has a variance of 0.04050,a beta of 1.60,and an expected return of 14.3 percent.What is the Treynor ratio if the expected risk-free rate is 5.5 percent?

Accepted Answer

A)  0.055 
B)  0.063 
C)  0.367 
D)  0.498 
E)  0.512 
A)  0.055 
B)  0.063 
C)  0.367 
D)  0.498 
E)  0.512

Question 19

You are comparing three assets which have differing Treynor ratios.Given this,which one of the following must be true?

Accepted Answer

A)  The assets may all be correctly priced if they have differing betas. 
B)  The assets have differing rates of return. 
C)  The assets have differing levels of market risk but equal amounts of total risk. 
D)  The assets are all mispriced according to CAPM. 
E)  The preferred investment is the asset with the highest Treynor ratio. 
A)  The assets may all be correctly priced if they have differing betas. 
B)  The assets have differing rates of return. 
C)  The assets have differing levels of market risk but equal amounts of total risk. 
D)  The assets are all mispriced according to CAPM. 
E)  The preferred investment is the asset with the highest Treynor ratio.

Question 20

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A,25 percent portfolio B,and 35 percent portfolio C?
  The risk-free rate is 2.9 percent and the market risk premium is 8.6 percent.

Accepted Answer

A)  0.054 
B)  0.062 
C)  0.070 
D)  0.081 
E)  0.102 
A)  0.054 
B)  0.062 
C)  0.070 
D)  0.081 
E)  0.102

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

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.

Which one of the following concerns a money manager's control over investment risks,particularly potential short-run losses?

Mike's portfolio has a two-year expected return of 21.70 percent.What is the expected return for one year?

The U.S.Treasury bill is yielding 2.5 percent and the market has an expected return of 9.0 percent.What is the Sharpe ratio of a portfolio that has a beta of 1.25 and a variance of 0.0218?

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

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A,25 percent portfolio B,and The risk-free rate is 2.5 percent and the market risk premium is 8.4 percent.

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 approximate standard deviation of your portfolio?

A portfolio has an average return of 9.7 percent,a standard deviation of 8.6 percent,and a beta of 0.72.The risk-free rate is 2.1 percent.What is the Treynor ratio?

A portfolio has a beta of 1.25 and an actual return of 13.0 percent.The risk-free rate is 4.50 percent and the market risk premium is 8.2 percent.What is the value of Jensen's alpha?

The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?

Your portfolio has an expected annual return of 11.6 percent.What is the two-year expected return?

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.

Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability?

Your portfolio has a standard deviation of 11.7 percent.What is the two-year standard deviation?

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 12.1 percent and the beta is 0.93?

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

A portfolio has a variance of 0.04050,a beta of 1.60,and an expected return of 14.3 percent.What is the Treynor ratio if the expected risk-free rate is 5.5 percent?

You are comparing three assets which have differing Treynor ratios.Given this,which one of the following must be true?

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A,25 percent portfolio B,and 35 percent portfolio C? The risk-free rate is 2.9 percent and the market risk premium is 8.6 percent.

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

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 and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 13: Performance Evaluation and Risk Management

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

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.

Which one of the following concerns a money manager's control over investment risks,particularly potential short-run losses?

Mike's portfolio has a two-year expected return of 21.70 percent.What is the expected return for one year?

The U.S.Treasury bill is yielding 2.5 percent and the market has an expected return of 9.0 percent.What is the Sharpe ratio of a portfolio that has a beta of 1.25 and a variance of 0.0218?

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

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A,25 percent portfolio B,and The risk-free rate is 2.5 percent and the market risk premium is 8.4 percent.

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 approximate standard deviation of your portfolio?

A portfolio has an average return of 9.7 percent,a standard deviation of 8.6 percent,and a beta of 0.72.The risk-free rate is 2.1 percent.What is the Treynor ratio?

A portfolio has a beta of 1.25 and an actual return of 13.0 percent.The risk-free rate is 4.50 percent and the market risk premium is 8.2 percent.What is the value of Jensen's alpha?

The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?

Your portfolio has an expected annual return of 11.6 percent.What is the two-year expected return?

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.

Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability?

Your portfolio has a standard deviation of 11.7 percent.What is the two-year standard deviation?

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 12.1 percent and the beta is 0.93?

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

A portfolio has a variance of 0.04050,a beta of 1.60,and an expected return of 14.3 percent.What is the Treynor ratio if the expected risk-free rate is 5.5 percent?

You are comparing three assets which have differing Treynor ratios.Given this,which one of the following must be true?

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A,25 percent portfolio B,and 35 percent portfolio C? The risk-free rate is 2.9 percent and the market risk premium is 8.6 percent.

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

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 and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters