Porfolio Mangement

Question 1

What is the standard deviation of higher returns?

Answer 1

High

Question 2

What is being risk neutral?

Answer 2

No preference regarding risk and would be indifferent between 2 such investments

Question 3

What is does Covariance of a portfolio measure?

Answer 3

Correlation of returns between each asset pair in the portfolio

Question 4

If two risky assets are perfectly correlated what is the correlation number? And what is the formula

Answer 4

Correlation = 1

Question 5

What does a Markowitz efficient frontier look like?

Answer 5

Question 6

What does a negative investment utility function mean?

Answer 6

Risk seeker

Question 7

What does the A stand for in the investment utility function

Answer 7

Risk aversion coefficient

Question 8

Which way do indifference curves slope for risk averse investors?

Answer 8

Upward - they require greater reward for risk

Question 9

What does the two fund separation theorem state?

Answer 9

All investors optimum portfolios will be made up of some combination of an optimal portfolio of risky assets and the risk free asset

Question 10

What is the capital allocation line

Answer 10

Possible combinations of risk feee assets and the optimal risky asset portfolio

Question 11

What does the combination of CAL and indifference curves give us?

Answer 11

The logic of selecting a optimal portfolio (one that maximises the investors utility)

Question 12

What does a flatter indifference curve result in for the optimal tangency portfolio

Answer 12

A portfolio that lies right of the one that has a steeper indifference curve

Question 13

What is the CML?

Answer 13

Adding a risk free asset to the set of risky assets considered in the Markowitz portfolio theory results in a new efficient frontier now the CML

Question 14

At what point in the CML are investors borrowing?

Answer 14

To the right of the CML

Question 15

What is the capital market theory?

Answer 15

Diversification is cost less and investors will only hold efficient portfolios

Question 16

What is unsystematic risk?

Answer 16

Risk that can be eliminated via diversification (investors must be compensated)

Question 17

What is systematic risk and what is it measured by?

Answer 17

Beta

Risk that remains in efficient portfolios

Question 19

What does the relationship between beta and expected return equal

Answer 19

Security market line

Question 20

What risk is priced?

Answer 20

Systematic risk. Investors receive a return for this

Question 21

For a fully diversified portfolio what are the most appropriate performance measures for an investor?

Answer 21

M-squared and sharpe ratio

Question 22

Formula for beta

Answer 22

Question 23

What asset would have higher expected return? One with higher non systematic risk or higher systematic risk

Answer 23

Higher systematic risk

Question 24

The intercept term of the market model is the assets estimated…

Answer 24

Alpha

Question 25

What is the market risk premium?

Answer 25

The difference between the return on the market and the risk free rate.

Question 26

What is a graphical representation of the CAPM model?

Answer 26

SML line

Question 27

With regard to the capital market theory what do all investors have regarding expectations which allows for the existence of the market portfolio

Answer 27

All investors have homogenous expectations

Question 28

What does jensens alpha adjust for?

Answer 28

Systematic risk

Question 29

What performance measure does not require the measure to be compared to another value?

Answer 29

Jensens alpha

Question 30

For a not fully diversified investor what performance measure should they use?

Answer 30

M squared

Question 31

What is the slope of the SML?

Answer 31

Beta

Question 32

What does Jensens alpha measure

Answer 32

evaluates the abnormal return of a portfolio compared to what would be expected based on its risk, using the Capital Asset Pricing Model (CAPM).

Question 33

Do portfolios affect risk or returns more?

Answer 33

They affect risk more than returns

Question 34

What sort of funds trade at their net asset value per share?

Answer 34

Open ended mutual funds

Question 35

What part of the IPS provides information about how policy may be executed including restrictions and exclusions is best described as….

Answer 35

Investment guidelines

Question 36

What are usually placed in the appendix of the IPS?

Answer 36

Rebalancing policy and Strategic asset allocation

Question 37

What is tactical asset allocation?

Answer 37

Decision to deliberately deviate from the policy exposures to systematic risk factors with the intent to add value based on forecasts of the near term returns

Question 38

What is strategic asset allocation?

Answer 38

Results from combining the constraints and objectives articulated in the IPS

Question 39

For similarly grouped assets what do the returns reflect

Answer 39

Exposures to certain systematic factors

Question 40

What accounts for most of the changes in value over time?

Answer 40

Systematic risk

Question 41

What are under diversified portfolios an implication from in regard to behavioural biases

Answer 41

Illusion of control Confirmation

Question 42

What biases are status quo biases

Answer 42

Endowment bias Regret aversion

Question 43

What is endowment

Answer 43

People place more value to things that they own

Question 44

What is rail risk

Answer 44

Uncertainty about the probability of extreme negative outcomes

Question 45

What does vega measure

Answer 45

Sensitivity of derivative values to the volatility of the price of the underlying

Question 46

What is duration

Answer 46

The price sensitivity of debt securities to changes in interest rates

Question 47

What is risk budgeting

Answer 47

Quantified and allocated the tolerable risk according to specific metrics

Question 48

What are the three elements that comprise the Value at risk metric

Answer 48

The amount of risk, time period and probability

Question 49

What does VaR measure in terms of losses?

Answer 49

The minimum loss that will occur

Question 50

Examples of non financial risk

Answer 50

Governmental, political and tax risk

Question 51

What is the slope of the CAL line

Answer 51

Sharpe ratio