Question 1

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 2

Which one of the following is a statistical model,defined by its mean and standard deviation,that is used to assess probabilities?

Accepted Answer

A)  variance 
B)  normal distribution 
C)  efficient frontier 
D)  Value-at-Risk 
E)  Jensen's alpha

Question 3

Which of the following measures are dependent upon the accuracy of a security's beta?
I.Sharpe ratio
II.Treynor ratio
III.Jensen's alpha

Accepted Answer

A)  I only 
B)  II only 
C)  I and II only 
D)  II and III only 
E)  I, II, and III

Question 4

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

Question 5

The Sharpe-optimal portfolio will be the investment opportunity set which lies on a straight line that has which of the following characteristics?

Accepted Answer

A)  the flattest slope when the line intersects the vertical axis at the risk-free rate 
B)  the steepest slope when the line intersects the vertical axis at the risk-free rate 
C)  the steepest slope when the line intersects the vertical axis at the origin 
D)  the flattest slope when the line intersects the vertical axis at the market rate 
E)  the steepest slope when the line intersects the vertical axis at the market rate

Question 6

Which one of the following measures risk premium in relation to systematic risk?

Accepted Answer

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

Question 7

Lester has a portfolio with an average return of 13.5 percent and a standard deviation of 22.5 percent.He has a one percent probability of losing ________ percent or more in any given year.

Accepted Answer

A)  −33.97 
B)  −38.94 
C)  −20.23 
D)  −5.04 
E)  −8.37

Question 8

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?

Accepted Answer

A)  −0.47 percent 
B)  −0.92 percent 
C)  1.37 percent 
D)  1.44 percent 
E)  1.57 percent

Question 9

Your portfolio has a standard deviation of 24.1 percent.What is the two-year standard deviation?

Accepted Answer

A)  31.87 percent 
B)  34.08 percent 
C)  36.55 percent 
D)  39.48 percent 
E)  41.15 percent

Question 10

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?

Accepted Answer

A)  0.61 
B)  0.68 
C)  0.72 
D)  0.84 
E)  0.88

Question 11

A fund has an alpha of 0.73 percent and a tracking error of 4.9 percent.What is the fund's information ratio?

Accepted Answer

A)  0.112 
B)  0.135 
C)  0.149 
D)  0.208 
E)  0.229

Question 12

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 13

Which one of the following measures returns in relation to total risk?

Accepted Answer

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

Question 14

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 0.0045?

Accepted Answer

A)  0.056 
B)  0.064 
C)  0.069 
D)  0.082 
E)  0.087

Question 15

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 16

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 17

A portfolio has a Sharpe ratio of 0.74,a standard deviation of 18.0 percent,and an expected return of 15.9 percent.What is the risk-free rate?

Accepted Answer

A)  1.98 percent 
B)  2.36 percent 
C)  2.58 percent 
D)  3.09 percent 
E)  3.15 percent

Question 18

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?

Accepted Answer

A)  0.074 
B)  0.086 
C)  0.102 
D)  0.619 
E)  0.628

Question 19

Your portfolio has a beta of 1.05,a standard deviation of 14.3 percent,and an expected return of 14.5 percent.The market return is 11.3 percent and the risk-free rate is 3.1 percent.What is the Treynor ratio?

Accepted Answer

A)  0.015 
B)  0.080 
C)  0.109 
D)  0.482 
E)  0.510

Question 20

A portfolio consists of the following two funds.  What is the expected return on fund A?

Accepted Answer

A)  12.0 percent 
B)  13.3 percent 
C)  13.7 percent 
D)  14.5 percent 
E)  15.7 percent

Exam 13: Performance Evaluation and Risk Management