Question 1

A portfolio has an expected annual return of 15.7 percent and a standard deviation of 19.6 percent.What is the smallest expected loss over the next calendar quarter given a probability of 1 percent?
A)-15.11 percent
B)-16.23 percent
C)-16.49 percent
D)-18.08 percent
E)-18.87 percent

Accepted Answer

Smallest loss = (.157 × .25) - 2.326 × (.196 × √.25) = -18.87 percent

Question 2

Mike's portfolio has a two-year expected return of 21.70 percent.What is the expected return for one year?
A)10.85 percent
B)12.50 percent
C)13.33 percent
D)14.22 percent
E)15.34 percent

Accepted Answer

Annual return = .2170/2 = 10.85 percent

Question 3

The one-year standard deviation of your portfolio is 14.8 percent.What is the two-year standard deviation?
A)16.47 percent
B)18.23 percent
C)20.93 percent
D)25.41 percent
E)27.20 percent

Accepted Answer

Two-year standard deviation = .148 × √2 = 20.93 percent

Question 4

A conservative investor has a well-diversified portfolio but is still concerned about two things.First,he is concerned about the downside risk and secondly,he is concerned whether he is earning a sufficient rate of return to compensate for the total risk he is assuming.How could you quantify these concerns for this investor?

Accepted Answer

The answer of A conservative investor has a well-diversified portfolio...

Question 5

High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 20.3 percent.What is the smallest expected loss over the next month given a probability of 2.5 percent?
A)-6.64 percent
B)-8.67 percent
C)-10.14 percent
D)-12.12 percent
E)-15.13 percent

Accepted Answer

Smallest loss = (.161 × 1/12) - 1.96 × (.203 × √1/12) = -10.14 percent

Question 6

Explain a key advantage and a key disadvantage of Jensen's alpha.

Accepted Answer

The answer of Explain a key advantage and a key...

Question 7

Trailer Co.stock has an expected return of 12.2 percent and a standard deviation of 11.8 percent.What is the smallest expected loss over the next month given a probability of 5 percent?
A)-4.59 percent
B)-6.09 percent
C)-7.27 percent
D)-11.49 percent
E)-13.77 percent

Accepted Answer

Smallest loss = (.122 × 1/12) - 1.645 × (.118 × √1/12) = -4.59 percent

Question 8

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 9

A portfolio has a 3-year standard deviation of 18.1 percent.What is the one-year standard deviation?
A)6.39 percent
B)8.69 percent
C)10.45 percent
D)11.80 percent
E)12.33 percent

Accepted Answer

.1810 = σ × √3; σ = 10.45 percent

Question 10

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

Accepted Answer

Smallest expected loss = (.115 × .5) - 1.96 × (.141 × √.5) = -13.79 percent

Question 11

Your portfolio has a standard deviation of 11.7 percent.What is the two-year standard deviation?
A)14.87 percent
B)15.80 percent
C)16.55 percent
D)23.40 percent
E)24.15 percent

Accepted Answer

Two-year standard deviation = .117 × √2 = 16.55 percent

Quiz 13: Performance Evaluation and Risk Management

A portfolio has an expected annual return of 15.7 percent and a standard deviation of 19.6 percent.What is the smallest expected loss over the next calendar quarter given a probability of 1 percent?

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

The one-year standard deviation of your portfolio is 14.8 percent.What is the two-year standard deviation?

High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 20.3 percent.What is the smallest expected loss over the next month given a probability of 2.5 percent?

Explain a key advantage and a key disadvantage of Jensen's alpha.

Trailer Co.stock has an expected return of 12.2 percent and a standard deviation of 11.8 percent.What is the smallest expected loss over the next month given a probability of 5 percent?

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

A portfolio has a 3-year standard deviation of 18.1 percent.What is the one-year standard deviation?

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?

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