This archive file of BUS 405 Week 4 Chapter 13 Performance Evaluation and Risk Management includes:

1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk?

2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following?

3. The risk premium of a portfolio divided by the portfolio’s standard deviation defines which one of the following performance measures?

4. Which one of the following is computed by dividing a portfolio’s risk premium by the portfolio beta?

5. Which one of the following measures a portfolio’s raw return against the expected return based on the Capital Asset Pricing Model?

6. Which one of the following concerns a money manager’s control over investment risks, particularly potential short-run losses?

7. Which one of the following assesses risk by stating the probability of a loss a portfolio might incur within a stated time period given a specific probability?

8. Which one of the following is a statistical model, defined by its mean and standard deviation, that is used to assess probabilities?

9. Which one of the following measures a security’s return in relation to the total risk associated with that security?

10. The Sharpe ratio measures a security’s return relative to which one of the following?

11. The Sharpe ratio is best used to evaluate which one of the following?

12. Which one of the following measures returns in relation to total risk?

13. Which one of the following values would be the most preferable as a Sharpe ratio?

14. Which one of the following measures risk premium in relation to systematic risk?

15. You are comparing three securities and discover they all have identical Treynor ratios. Given this information, which one of the following must be true regarding these three securities?

16. You are comparing three assets which have differing Treynor ratios. Given this, which one of the following must be true?

17. You are considering the purchase of a mutual fund. You have found three funds that meet your basic criteria. Each fund has a different alpha. Which alpha indicates the preferred investment?

18. Which one of the following statements is correct in relation to a security that has a negative Jensen’s alpha?

19. Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model?

20. Tony brags that his portfolio’s rate of return is “beating the market”. Which one of the following would best substantiate his claim?

21. Which of the following should generally only be used to evaluate relatively diversified portfolios rather than individual securities?

22. Which of the following measures are dependent upon the accuracy of a security’s beta?

I. Sharpe ratio

II. Treynor ratio

III. Jensen’s alpha

23. Which one of the following is probably the best measure of the performance of a well-diversified portfolio?

24. Which of the following measures should be used to determine if a security should be included in a master portfolio?

25. The Jensen-Treynor alpha is equal to:

26. Which one of the following is measured by the Jensen-Treynor alpha?

27. The Sharpe-optimal portfolio will be the investment opportunity set which lies on a straight line that has which of the following characteristics?

28. A Sharpe-optimal portfolio provides which one of the following for a given set of securities?

29. You want to create the best portfolio that can be derived from two assets. Which one of the following will help you identify that portfolio?

30. Which measure would you use to know whether alpha is truly significant or just the result of random chance?

31. Which metric measures how volatile a fund’s returns are relative to its benchmark?

32. Which metric describes the percentage of a fund’s movement which can be explained by movements in the market?

33. Which one of the following is the primary purpose of the Value-at-Risk computation?

34. Which one of the following is the best interpretation of this VaR statistic: Prob (Rp ? – .15) = 37%?

35. The Value-at-Risk measure assumes which one of the following?

36. Which one of the following Value-at-Risk measures would be most appropriate for a portfolio designed for a very risk-adverse investor?

37. Which one of the following statements is true concerning VaR?

38. Which of the following are related to VaR analysis?

I. beta

II. standard deviation

III. expected return

IV. time

39. You have computed the expected return using VaR with a 2.5 percent probability for a one-year period of time. How would this expected return be expressed on a normal distribution curve?

40. Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability?

41. A portfolio has a 2.5 percent chance of losing 16 percent or more according to the VaR when T = 1. This can be interpreted to mean that the portfolio is expected to have an annual loss of 16 percent or more once in every how many years?

42. A portfolio has an average return of 13.3 percent, a standard deviation of 14.7 percent, and a beta of 1.35. The risk-free rate is 2.8 percent. What is the Sharpe ratio?

43. A portfolio has a beta of 1.26, a standard deviation of 15.9 percent, and an average return of 15.07 percent. The market rate is 12.7 percent and the risk-free rate is 3.6 percent. What is the Sharpe ratio?

44. The U.S. Treasury bill is yielding 3.0 percent and the market has an expected return of 10.7 percent. What is the Sharpe ratio of a portfolio that has a beta of 1.32 and a variance of .027556?

45. A portfolio has a beta of 1.23 and a standard deviation of 11.6 percent. What is the Sharpe ratio if the market return is 12.4 percent and the market risk premium is 7.9 percent?

46. A portfolio has a variance of .017424, a beta of 1.06, and an expected return of 13.15 percent. What is the Sharpe ratio if the expected risk-free rate is 3.4 percent?

47. A portfolio has a Sharpe ratio of .80, a standard deviation of 17.4 percent, and an expected return of 15.9 percent. What is the risk-free rate?

48. Your portfolio has an expected return of 15.6 percent, a beta of 1.31, and a standard deviation of 15.3 percent. The U.S. Treasury bill rate is 3.8 percent. What is the Sharpe ratio of your portfolio?

49. A portfolio has a beta of 1.16, a standard deviation of 12.2 percent, and an expected return of 11.55 percent. The market return is 10.4 percent and the risk-free rate is 3.2 percent. What is the portfolio’s Sharpe ratio?

50. Your portfolio has a beta of 1.24, a standard deviation of 14.3 percent, and an expected return of 12.5 percent. The market return is 11.3 percent and the risk-free rate is 3.1 percent. What is the Treynor ratio?

51. A portfolio has an expected return of 13.8 percent, a beta of 1.14, and a standard deviation of 12.7 percent. The U.S. Treasury bill rate is 3.2 percent. What is the Treynor ratio?

52. 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?

53. A portfolio has a variance of .027556, a beta of 1.54, and an expected return of 11.2 percent. What is the Treynor ratio if the expected risk-free rate is 2.7 percent?

54. The U.S. Treasury bill is yielding 2.8 percent and the market has an expected return of 11.6 percent. What is the Treynor ratio of a correctly-valued portfolio that has a beta of .92, and a standard deviation of 12.2 percent?

55. 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?

56. A portfolio has a standard deviation of 14.1 percent, a beta of 1.45 and a Treynor ratio of .094. The risk-free rate is 3.2 percent. What is the portfolio’s expected rate of return?

57. The U.S. Treasury bill is yielding 1.85 percent and the market has an expected return of 7.48 percent. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.33 and a variance of .0045?

58. Your portfolio actually earned 6.2 percent for the year. You were expecting to earn 8.6 percent based on the CAPM formula. What is Jensen’s alpha if the portfolio standard deviation is 11.2 percent and the beta is .87?

59. A portfolio has a beta of 1.52 and an actual return of 13.7 percent. The risk-free rate is 2.7 percent and the market risk premium is 7.8 percent. What is the value of Jensen’s alpha?

60. The U.S. Treasury bill has a return of 3.27 percent while the S&P 500 is returning 10.84 percent. Your portfolio has an actual return of 14.76 percent and a beta of 1.31. What is the portfolio’s Jensen’s alpha?

61. A diversified portfolio has a beta of 1.47 and a raw return of 14.28 percent. The market return is 11.74 percent and the market risk premium is 7.85 percent. What is Jensen’s alpha of the portfolio?

62. A portfolio has an actual return of 15.17 percent, a beta of .93, and a standard deviation of 7.2 percent. The market return is 13.4 percent and the risk-free rate is 2.8 percent. What is the portfolio’s Jensen’s alpha?

63. A portfolio has a Jensen’s alpha of 0.82 percent, a beta of 1.40, and a CAPM expected return of 13.7 percent. The risk-free rate is 2.5 percent. What is the actual return of the portfolio?

64. What is the Treynor ratio of a portfolio comprised of 50 percent portfolio A and 50 percent portfolio B? The risk-free rate is 3.12 percent and the market risk premium is 8.5 percent.

65. What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A, 35 percent portfolio B, and 40 percent portfolio C? The risk-free rate is 3.6 percent and the market risk premium is 8.2 percent.

66. What is Jensen’s alpha of a portfolio comprised of 30 percent portfolio A and 70 percent of portfolio B? The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent.

67. A stock has a return of 16.18 percent and a beta of 1.47. The market return is 10.65 percent and the risk-free rate is 3.20 percent. What is the Jensen-Treynor alpha of this stock?

68. 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?