Question 1

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 2

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 of this stock?

Accepted Answer

A) -1.37 percent 
B) -1.09 percent 
C) -0.48 percent 
D) 0.89 percent 
E) 1.05 percent

Question 3

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

Question 4

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

Question 5

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

Question 6

Which of the following are related to VaR analysis?
I.beta
II.standard deviation
III.expected return
IV.time

Accepted Answer

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

Question 7

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 8

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 .93?

Accepted Answer

A) -3.91 percent 
B) -3.40 percent 
C) -2.96 percent 
D) -2.40 percent 
E) -1.87 percent

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.

Question 10

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?

Accepted Answer

A) .49 
B) .52 
C) .62 
D) .71 
E) .75

Question 11

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

Accepted Answer

The answer of Explain the similarities and differences between the...

Question 12

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?

Accepted Answer

A) -8.90 percent 
B) -13.79 percent 
C) -14.57 percent 
D) -15.38 percent 
E) -16.67 percent

Question 13

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.

Accepted Answer

A) -33.97 
B) -38.87 
C) -20.67 
D) -5.04 
E) -8.37

Question 14

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

Question 15

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

Question 16

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 17

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 18

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?

Accepted Answer

A) -12.03 percent 
B) -14.87 percent 
C) -16.77 percent 
D) -17.38 percent 
E) -19.36 percent

Question 19

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?

Accepted Answer

A) .015 
B) .080 
C) .109 
D) .482 
E) .510

Question 20

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?

Accepted Answer

A) .65 
B) .67 
C) .70 
D) .77 
E) .83

Exam 13: Performance Evaluation and Risk Management