Portfolio Management

Question 1

5% Annual $VaR

Answer 1

[Mean(R) - 1.65 St. Dev(R)]xPortfolio Value

Question 2

Real risk free rate of return

Answer 2

1-P0/P0

Question 3

VWAP Transaction Cost for a Sell

Answer 3

Size x (Benchmark VWAP - Trade VWAP)

Question 4

APT theory says (3)

Answer 4

1. A well diversified portfolio contains no arb opportunities and implies financial market equilibrium
2. Fundamental factors can explain returns (Rf + PremiumxFactor)
3. Adding to a portfolio will reduce active specific risk

Question 5

Standardised Betas are used in..

Answer 5

Fundamental factor models

Question 6

Macroeconomic Factor Models have an expected impact for each factor of ..

Answer 6

Zero

Question 7

Active Return Definition (2)

Answer 7

1. Active Weight x Expected Return

2. (Sum of each Factor x Active Sensitivity) + (Active Return from Security Selection)

Question 8

VaR is best used for … by …

Answer 8

Performance Evaluation .. Risk Adjustment of Returns

Question 9

Scenario Analysis does not have to be based on

Answer 9

History

Question 10

Hedges required above a certain level are a form of

Answer 10

Stop-Loss

Question 11

A time based VaR limit is an example of

Answer 11

Risk budgeting

Question 12

Can Monte Carlo extend to bonds with embedded options?

Answer 12

Yes

Question 13

Relative VaR aka

Answer 13

Ex Ante attacking Error

Question 14

Conditional VaR is

Answer 14

VaR given minimum loss is exceeded

Question 15

Factor Risk Exposure

Answer 15

Active Factor Risk / Active Risk Squared

Question 16

An index fund that effectively meets its investment objective has an information ratio of

Answer 16

0

Question 17

Value Added aka

Answer 17

Active Return

Question 18

Which ratio is affected by cash/leverage

Answer 18

The Information Ratio