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Student: ___________________________________________________________________________
1. The assessment of the returns generated by a money manager relative to the level of risk taken is known as:
A. market testing.
B. value-at-risk.
C. performance evaluation.
D. minimum variance evaluation.
E. risk management.
2. _________ is defined as the return of an investment without any adjustment for risk or comparison to a
benchmark.
A. The Treynor ratio
B. The raw return
C. Jensen's alpha
D. The Sharpe ratio
E. The Jensen-Treynor alpha
6. ___________ measures investment performance as the ratio of the portfolio risk premium over the portfolio
beta. This approach gives the amount of risk premium per unit of beta.
A. The Treynor ratio
B. The raw return
C. Jensen's alpha
D. The Sharpe ratio
E. The Jensen-Treynor alpha
8. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta?
A. The Treynor ratio
B. The raw return
C. Jensen's alpha
D. The Sharpe ratio
E. The Jensen-Treynor alpha
9. _______ gives the excess return of a hypothetical portfolio over the market portfolio while they carry the
same risk.
A. The Treynor ratio
B. The Tobin's q
C. The Jensen's alpha
D. The Sharpe ratio
E. The M2 measure
10. __________ deals with the money manager's control over investment risk, particularly with the potential
short-term losses.
A. Investment risk management
B. Market simulation
C. Value-at-risk
D. Back testing
E. Performance evaluation
11. _________ assesses risk by stating the probability of a loss a portfolio that might be incurred within a stated
time period given a specified probability.
A. Investment risk management
B. Market simulation
C. Value-at-risk
D. Back testing
E. Performance evaluation
12. The statistical model for assessing probabilities based on a mean and standard deviation is called the
___________ distribution.
A. t-
B. Chi squared
C. F
D. Normal
E. Binomial
13. A __________ portfolio has the highest reward-to-risk ratio over any possible combination of the
investment opportunity set.
A. Jensen-optimal
B. Sharpe-optimal
C. Treynor-optimal
D. Credit-optimal
E. Default-optimal
16. Which of the following performance measures is the least useful measure of performance?
A. Treynor ratio.
B. Raw return.
C. Jensen-Treynor alpha.
D. Jensen's alpha.
E. Sharpe ratio.
17. Which of the following performance measures analyzes the portfolio's risk premium?
I) Treynor ratio
II) Sharpe ratio
III) Jensen's alpha
A. II only
B. I and II only
C. II and III only
D. I only
E. I, II, and III
19. The Sharpe Ratio is considered to be a good measure for well diversified portfolios because:
A. The most of the total risk in the portfolio is systemic risk
B. The beta estimate is unambiguous.
C. It used by mutual fund managers.
D. Unsystemic risk is of little worry in correctly diversified portfolios.
E. Well diversified portfolios have a high R-Squared correlation.
20. A negative Sharpe ratio indicates
A. a contrarian management style.
B. a portfolio which failed to beat the performance of the risk free asset.
C. a portfolio which is well managed.
D. the portfolio's raw return was great than its standard deviation
E. None of the above.
22. The Treynor ratio measures the _________ per unit of ___________ risk.
A. Raw return; total
B. Raw return; systematic
C. Portfolio excess return; systematic
D. Portfolio excess return; total
E. Portfolio excess return; unique
23. You are comparing three portfolios that have differing Treynor ratios. Given this, you
A. Know that the portfolio with the lowest Treynor ratio is under-priced
B. Should invest in the portfolio with the highest Treynor ratio
C. Can safely assume that the portfolios have differing levels of total risk
D. Know the portfolios are all mis-priced
E. Can safely assume that the portfolios have differing levels of market risk
24. The major difference between the Sharpe ratio and the Treynor ratio is that the Sharpe ratio analyzes
_________ risk and the Treynor ratio analyzes ___________ risk.
A. total; total
B. total; systematic
C. systematic; systematic
D. systematic; total
E. None of the above.
25. An asset with a Treynor ratio greater than the Treynor ratio of the market will have a:
A. positive Jensen's alpha.
B. negative Jensen's alpha.
C. Sharpe ratio greater than the Sharpe ratio of the market.
D. Sharpe ratio les than the Sharpe ratio of the market.
E. Insufficient information.
26. In an efficient market, which of the following will be the same for every asset?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A. II only
B. I and III only
C. II and III only
D. I only
E. I, II, and III
27. In an efficient market, which of the following performance measures should be zero for all assets?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A. III only
B. I and III only
C. II and III only
D. I only
E. I, II, and III
28. An asset with a negative Jensen's alpha will plot __________ the security market line.
A. above
B. below
C. on
D. on or below
E. on or above
29. An asset with a positive Treynor ratio will plot __________ the security market line.
A. above
B. below
C. on
D. on or below
E. on or above
30. If you want to search for under-pricing assets, you should look for
A. Low betas
B. High betas
C. Low alphas
D. High alphas
E. Low standard deviations
32. Which of the following performance measures is best used to analyze a well diversified portfolio?
I) Treynor ratio
II) Sharpe ratio
III) Jensen's alpha
A. III only
B. I and III only
C. II and III only
D. II only
E. I, II, and III
33. Which of the following performance measures is best used to analyze a portfolio for possible inclusion in a
master portfolio?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A. III only
B. I and III only
C. II and III only
D. I only
E. I, II, and III
34. Which of the following performance measures does not depend upon the accuracy of the beta?
A. Treynor ratio.
B. Sharpe ratio.
C. Jensen-Treynor alpha.
D. Jensen's alpha.
E. None of the above.
35. Which of the following performance measures is most closely related to the efficient frontier?
A. Treynor ratio.
B. Raw return.
C. Jensen-Treynor alpha.
D. Jensen's alpha.
E. Sharpe ratio.
37. You want to create a two-asset portfolio. To have the best portfolio possible, you should select for the
_________ portfolio.
A. Highest beta
B. Sharpe-optimal
C. Highest return
D. Sharpe-minimal
E. Market equivalent
38. In the normal distribution, the probability of an observation being within plus or minus one standard
deviation of the mean is about ________ percent.
A. 50
B. 67
C. 90
D. 95
E. 99
39. The mean of the normal distribution is _________ and the standard deviation is __________.
A. 0; 0
B. 0; 1
C. 1; 1
D. 1; 0
E. 1; 2
40. In the normal distribution, the z-statistic value for a one tailed probability of 95 percent is __________.
A. 1.215
B. 1.645
C. 1.960
D. 2.326
E. 2.415
41. The probability of a 1% loss is based on __________ standard deviation below the mean.
A. 1.215
B. 1.645
C. 1.960
D. 2.326
E. 2.415
42. How do you interpret this VaR statistic: Prob (Rp -0.09) = 23%?
A. If your portfolio declines by 9% or more, that decline is expected to be followed by a 23% increase in value
B. Your portfolio is expected to lose at least 9%, but not more than 23% in any given year
C. There is a 23% chance that your portfolio will be worth at least 9% less one year from now than it is today
D. Sometime in the future, your portfolio is expected to lose 9% or more in a single year, but have an overall
average rate of return of 23%
E. If your portfolio rises in value by at least 23%, you should expect a market correction of 9% or more
45. With a monthly standard deviation of a portfolio, M., what is the annual standard deviation?
A. M 12
B. M
C. 12
D. M/
E. /M
I) Treynor ratio
II) Sharpe ratio
III) Jensen's alpha
A. II only
B. I and III only
C. I and II only
D. III only
E. I, II, and III
48. Which of the following performance measures is zero for the risk-free asset?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A. II only
B. I and III only
C. I and II only
D. III only
E. I, II, and III
49. Which of the following performance measures is zero for the market?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A. II only
B. I and III only
C. I and II only
D. III only
E. I, II, and III
50. Which of the following performance measures is considered good when it is positive?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A. II only
B. I and III only
C. I and II only
D. III only
E. I, II, and III
51. Consider a portfolio with an initial expected return, beta, and standard deviation. Improvement in which of
the performance measures will improve value-at-risk to the extent that the potential loss will decrease?
I) Treynor ratio
II) Sharpe ratio
III) Jensen's alpha
A. II only
B. I and III only
C. I and II only
D. III only
E. I, II, and III
52. Which of the following performance measures requires a correlation coefficient to calculate the
performance measure for a new portfolio of two or more assets?
I) Treynor ratio
II) Sharpe ratio
III) Jensen's alpha
A. II only
B. I and III only
C. I and II only
D. III only
E. I, II, and III
53. Which of the following is not true about the Sharpe ratio?
A. An estimate for the beta of the portfolio is not required.
B. It penalizes a portfolio that is not diversified.
C. It allows us to find the best portfolio on the efficient frontier.
D. It is useful for measuring the performance of an individual asset.
E. All of the above are true about the Sharpe ratio.
54. A portfolio's return above or below the expected return given the asset's systematic risk is:
A. the Treynor ratio.
B. the raw return.
C. the Jensen-Treynor alpha.
D. the Jensen's alpha.
E. the Sharpe ratio.
55. The performance metric that measures how much a portfolio "beat the market" is:
A. the Treynor ratio.
B. the raw return.
C. the Jensen-Treynor alpha.
D. the Jensen's alpha.
E. the Sharpe ratio.
58. When __________ of an asset is better than the comparable market measure, ___________ is also better
than the market.
A. the Sharpe ratio; the Treynor ratio
B. Jensen's alpha; the Sharpe ratio
C. the raw return; Jensen's alpha
D. Jensen's alpha; the Treynor ratio
E. the Treynor ratio; the raw return
59. While you can lend at the risk-free rate but cannot borrow at that rate, your choice of a complete portfolio is
A. unaffected at all levels of risk.
B. separate from the shape of the Markowitz efficient frontier.
C. unaffected at low levels of risk but restricted at high levels of risk.
D. restricted at low levels of risk but unaffected at high levels of risk.
E. none of the above
61. A strategy of passive management is one in which, once established, the portfolio is
A. Readjusted on a regular basis
B. Only readjusted if prices decline
C. Largely left alone
D. Only readjusted if prices rise
E. Readjusted at the manager's discretion
62. Which of the following is true regarding active portfolio management strategy?
A. The goal of active portfolio management is to earn an excess return on the risk-adjusted basis
B. An actively managed portfolio has lower total transaction costs
C. An actively managed portfolio has lower risk than the passive benchmark
D. A key to success for an actively managed portfolio is to maximize trading activity
E. All of the above
63. Which of the following is the technique employed by a passive portfolio management strategy?
A. Quantitative screens
B. Full replication
C. Use of factor models
D. Sector rotation
E. None of the above
65. Which of the following represents the best Sharpe ratio for an investment decision?
A. -1.64
B. -0.99
C. 0
D. 0.98
E. 1.46
66. A portfolio has an average return of 14 percent, a standard deviation of 27 percent, and a beta of 1.15. The
risk-free rate is 4.5 percent, and the expected return of the market is 12 percent. What is the Sharpe ratio for the
portfolio?
A. 0.21
B. 0.43
C. 0.35
D. 0.26
E. 0.31
67. A portfolio has an average return of 14 percent, a standard deviation of 27 percent, and a beta of 1.15. The
risk-free rate is 4.5 percent, and the expected return of the market is 12 percent. What is the Treynor ratio for
the portfolio?
A. 0.0741
B. 0.0943
C. 0.0782
D. 0.0918
E. 0.0826
68. A portfolio has an average return of 14 percent, a standard deviation of 27 percent, and a beta of 1.15. The
risk-free rate is 4.5 percent, and the expected return of the market is 12 percent. What is Jensen's alpha for the
portfolio?
A. 0.705%
B. 0.625%
C. 0.875%
D. 0.550%
E. 0.920%
69. A portfolio with a beta of 0.9 has an expected return of 11 percent and a standard deviation of 24 percent.
The expected return of the market is 12 percent, and the risk-free is 5 percent. What is the Sharpe ratio for the
portfolio?
A. 0.25
B. 0.16
C. 0.29
D. 0.34
E. 0.21
70. A portfolio with a beta of 0.9 has an expected return of 11 percent and a standard deviation of 24 percent.
The expected return of the market is 12 percent, and the risk-free is 5 percent. What is the Treynor ratio for the
portfolio?
A. 0.0701
B. 0.0667
C. 0.0775
D. 0.0810
E. 0.0725
71. A portfolio with a beta of 0.9 has an expected return of 11 percent and a standard deviation of 24 percent.
The expected return of the market is 12 percent, and the risk-free is 5 percent. What is Jensen's alpha for the
portfolio?
A. -0.49%
B. -0.54%
C. -0.38%
D. -0.30%
E. -0.45%
74. 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?
Refer: To: 13-72
A. 0.098
B. 0.106
C. 0.121
D. 0.636
E. 0.884
75. A portfolio has a Treynor ratio of .068, 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?
Refer: To: 13-72
A. 1.32 percent
B. 5.21 percent
C. 5.39 percent
D. 6.18 percent
E. 6.41 percent
76. What is Jensen's alpha for Portfolio C?
Refer: To: 13-72
A. 0.40%
B. 0.20%
C. 0.35%
D. 0.30%
E. 0.25%
82. Which portfolio(s) should you add to a master portfolio using the Treynor ratio?
Refer: To: 13-72
A. A only
B. D only
C. A and B
D. A and C
E. B and D
83. Suppose you invest equally in Portfolio A and Portfolio C. What is Jensen's alpha for the combined
portfolio?
Refer: To: 13-72
A. 0.40%
B. 0.50%
C. 0.35%
D. 0.20%
E. Insufficient information.
84. Suppose you invest equally in Portfolio A and Portfolio C. What is the Treynor ratio for the combined
portfolio?
Refer: To: 13-72
A. 0.083
B. 0.080
C. 0.086
D. 0.089
E. Insufficient information.
85. Suppose you invest equally in Portfolio A and Portfolio C. What is the Sharpe ratio for the combined
portfolio?
Refer: To: 13-72
A. 0.431
B. 0.363
C. 0.420
D. 0.389
E. Insufficient information.
86. What is the Jensen-Treynor alpha for Portfolio A?
Refer: To: 13-72
A. 0.41%
B. 0.25%
C. 0.33%
D. 0.29%
E. 0.38%
87. A stock had a return of 16.4 percent and a beta of 1.2. The market return was 12.1 percent and the risk-free
rate was 5.2 percent. What is the Jensen-Treynor alpha for the stock?
A. 2.82%
B. 2.43%
C. 2.74%
D. 2.92%
E. 2.51%
88. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. 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?
A. -1.37 percent
B. -1.09 percent
C. -0.48 percent
D. 0.29 percent
E. 0.63 percent
89. A stock has an annual standard deviation of 64 percent. What is the standard deviation over a three-month
period?
A. 27.35%
B. 30.19%
C. 32.00%
D. 23.63%
E. 20.18%
90. A stock has an annual standard deviation of 57 percent. What is the monthly standard deviation?
A. 16.45%
B. 18.63%
C. 12.18%
D. 11.26%
E. 10.19%
91. A stock has a monthly standard deviation of 14.34 percent. What is the annual standard deviation?
A. 172.08%
B. 61.26%
C. 53.41%
D. 49.68%
E. 58.72%
92. A stock has an annual standard deviation of 64 percent. What is the standard deviation of the stock for two
years?
A. 108.63%
B. 128.00%
C. 96.01%
D. 100.34%
E. 90.51%
93. A stock has an average annual return of 50.17 percent. What is the 2-year average return?
A. 108.63%
B. 128.00%
C. 96.01%
D. 100.34%
E. 90.51%
94. A stock has a 2-year average return of 38.9 percent. What is the average annual return?
A. 19.45%
B. 12.80%
C. 77.80%
D. 10.34%
E. 6.23%
95. Your portfolio has an annualized standard deviation of 15.6% and average annual return of 12.8%. You
have a 5% probability of losing ________ or more in any given year. Note: the 5% probability level has a "Z"
value of 1.645.
A. 18.63%
B. 14.00%
C. 12.86%
D. 10.34%
E. 9.51%
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