Investments

Question 1

What statistical measure is used to quantify total risk?

Answer 1

Standard Deviation

Question 2

What risk can be eliminated through diversifying the portfolio?

Answer 2

Unsystematic risk

Question 3

Name the Systematic Risks

Answer 3

(PRIME)
Purchasing Power risk
Reinvestment risk
Interest rate risk
Market risk
Exchange rate risk

Question 4

Systematic risks can or cannot be diversified away?

Answer 4

cannot

Question 5

The probability of a return falling within +/- 1 of the average is

Answer 5

68%

Question 6

The probability of a return falling within +/- 2 of the average is

Answer 6

95%

Question 7

The probability of a return falling within +/- 3 of the average is

Answer 7

99%

Question 8

Jensen’s Performance Index (Alpha) is a measure that is used to evaluate the benefit of _______ and measures _________________

Answer 8

Portfolio manager
Excess return

Question 9

Alpha is known as what type of value?

Answer 9

Absolute

Question 10

Use Sharpe Ration when…

Answer 10

R2 is less than .70

Question 11

The Capital Asset Pricing Model (CAPM) uses which statistic to quantify risk?

Answer 11

Beta

Question 12

What type of measure is the Sharpe ratio?

Answer 12

Relative

Question 13

A normal distribution curve is known as

Answer 13

mesokurtic

Question 14

A distribution curve that is more peaked than normal is known as

Answer 14

leptokurtic

Question 15

A distribution curve that is less peaked than normal is known as

Answer 15

platykurtic

Question 16

Describe a negatively skewed distribution

Answer 16

Outliers in the lower side, or has a left tail.
Also referred to being skewed left.

Question 17

Describe a positively skewed distribution

Answer 17

Outliers in the upper side, or has a right tail.
Also referred to being skewed right.

Question 18

A portfolio has eliminated all diversifiable risks through the addition of securities. What statistical measure is used to describe the risk remaining in the portfolio?

Answer 18

Beta

Question 19

Which return is affected by the timing of cash flows?

Answer 19

Dollar-weighted

Question 20

The measure of risk used to calculate Treynor is

Answer 20

Beta

Question 21

A statistical measure that describes when a distribution curve is more or less peaked than a normal distribution in known as?

Answer 21

Kurtosis

Question 22

When illustrating investment returns over a period of time greater than one year, what is the appropriate measure of return that should be used?

Answer 22

time-weighted rate of return

Question 23

What is the appropriate risk measure to use when calculating a portfolio’s Sharpe ratio?

Answer 23

Standard Deviation

Question 24

What is Jensen’s Performance Index used to measure?

Answer 24

Risk Adjusted Rate of Return

Question 25

Matching the duration of the portfolio to the investor’s time horizon is called

Answer 25

immunizing the portfolio.

Question 26

The efficient frontier is the curve that represents ______________

Answer 26

the optimal amount of return given a level of risk.

Question 27

The stated or coupon yield is called

Answer 27

Nominal yield

Question 28

Calculate Current yield

Answer 28

The annual income paid divided by the current market price of the bond.

Question 29

Used to estimate the sensitivity of a bond to changes in rates.

Answer 29

Duration

Question 30

What is Jensen’s Performance Index used to measure?

Answer 30

Jensen’s Performance Index (alpha) is used to measure risk adjusted return.