Chapter 13 MC Questions
which one of the following values would be most preferable as a sharpe ratio?
1.02
a portfolio has a 2.5% chance of losing 16% 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% or more once in every how many years?
40
which of the following should generally only be used to evaluate relatively diversified portfolios rather than individual securities?
I. sharpe ratio
which of the following are related to VaR analysis?
II. standard deviation III. expected return IV. time
which of the following measures are dependent upon the accuracy of a security's beta?
II. treynor ratio III. jensen's alpha
which one of the following measures should be used to determine if a security should be included in a master portfolio?
II. treynor ratio III. jensen's alpha
which one of the following value at risk measures would be most appropriate for a portfolio designed for a very risk adverse investor?
Prob (Rp < -.05) = 1%
which metric describes the percentage of a fund's movement which can be explained by movements in the market?
R squared
the risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?
Sharpe ratio
which one of the following statements is true concerning VaR?
VaR values can be computed for monthly time periods
which one of the following is the best indication that a security is correctly priced according to the CAPM?
alpha of zero
the sharpe ratio is best used to evaluate which one of the following?
diversified portfolios
which one of the following is the primary purpose of the value at risk computation?
evaluate the probability of a significant loss
which one of the following is measured by the jensen-treynor alpha?
excess return relative to systematic risk
a sharpe optimal portfolio provides which one of the following for a given set of securities?
highest risk premium per unit of total risk
which measure would you use to know whether alpha is truly significant or just the result of random chance?
information ratio
which one of the following concerns a money manager's control over investment risk, particularly potential short-run losses?
investment risk management
which one of the following measures a portfolios raw return against the expected return based on the CAPM?
jensen's alpha
the jensen-treynor alpha is equal to:
jensen's alpha divided by beta
you have computed the expected return using VaR with a 2.5% probability for one-year period of time. How would this expected return be expressed on a normal distribution curve?
lower tail of a 95% probability range
which of the following is a statistical model, defined by its mean and standard deviation, that is used to assess probabilities?
normal distribution
which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?
performance evaluation
Tony brags that his portfolio's rate of return is beating the market. Which one of the following would best substantiate his claim?
positive jensen's alpha
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?
raw return
the value at risk measure assumes which one of the following?
returns are normally distributed
which one of the following is probably the best measure of the performance of a well diversified portfolio?
sharpe ratio
which one of the following measures a security's return in relation to the total risk associated with that security?
sharpe ratio
which one of the following measures returns in relation to total risk?
sharpe ratio
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?
sharpe-optimal portfolio
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?
the highest positive alpha
you are comparing three assets which have differing Treynor ratios. Given this, which one of the following must be true?
the preferred investment in the asset with the highest treynor ratio
which one of the following statements is correct in relation to a security that has a negative Jensen's alpha
the security is overpriced and will plot below the security market line
the sharpe optimal portfolio will be the investment opportunity set which lies on a straight line that has which of the following characteristics?
the steepest slope when the line intersects the vertical axis at the risk free rate
which one of the following is the best interpretation of this VaR statistic: Prob (Rp < -.15) = .37%
there is a 37% chance that your portfolio will decline in value by at least 15% over the next year
you are comparing three securities and discover they all have identical treynor ratios. Given this info, which one of the following must be true regarding these three securities?
they earn identical rewards per unit of systematic risk
the sharpe ratio measures a security's return relative to which one of the following?
total risk
which metric measures how volatile a fund's returns are relative to its benchmark?
tracking error
which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?
treynor ratio
which one of the following measures risk premium in relation to systematic risk?
treynor ratio
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?
value-at-risk
