Ratios - Wordy Questions Flashcards
1
Q
What does ROE measure?
A
- Ability to generate profit
- How efficiently shareholders funds are used
- Relative performance within sector
2
Q
Limitations of using Alpha
A
- Doesn’t explain reason for out performance
- Ignores Costs
- Assumes Beta is correct measure of risk
- Assumes market rate/risk free rate is correct
3
Q
What does Information Ratio measure?
A
- Compares against Benchmark
- Assess Risk adjusted returns
- Measures out performance
- Consistency of manager
4
Q
Reasons for high Info Ratio
A
- Out performance
- Consistency of manager
- Skill in purchases and disposals
- Low cash
- Trading at premium
- Use of gearing
5
Q
Benefits of CAPM
A
- Easy to Calc
- Takes account of Systematic risk
- Trusted
- Gives Expected Return
- Reflects diversified portfolios don’t have non-systematic risk
6
Q
What does Sharpe ratio measure
A
Excess return for each unit of risk
Excess return our standard deviation
Compare funds of similar objectives.
7
Q
Drawbacks of Sharp ratio
A
- Consider with other factors
- can be distorted by manager strategy
- assumes normal dist
- distorted by costs
8
Q
Limitations of beta
A
- Measure of mover rise alone
- assures rf rate is correct
- not accurate predictor of future beta -
9
Q
Differences between Sharpe ratio and info ratio
A
- Bench mark vs.. Rf
- Ir measures consistency, shape does not
- tracking error us. STD dev
