Question 1

What is the Treynor ratio of a portfolio comprised of 45 percent portfolio A and 55 percent portfolio B?
P1P1_5.08AP1P1_EP1P1_12.70BP1P1_E
WeightP1P1_5.0845%P1P1_EP1P1_12.7055%P1P1_E
Avg ReturnP1P1_5.0813.60%P1P1_EP1P1_12.708.40%P1P1_E
Std DevP1P1_5.0817.20%P1P1_EP1P1_12.706.40%P1P1_E
BetaP1P1_5.081.38P1P1_EP1P1_12.700.87P1P1_E
The risk-free rate is 3.12 percent and the market risk premium is 8.5 percent.

Accepted Answer

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Question 2

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?

Accepted Answer

0.082 = R_P -0.137; R_P = 21.9 percent

Question 3

A portfolio has a standard deviation of 15.8 percent and an average return of 14.2 percent.What loss is associated with a 2.5 percent probability?

Accepted Answer

Loss percent = 0.142 − 1.96 (0.158) = −16.77 percent

Question 4

Lester has a portfolio with an average return of 13.5 percent and a standard deviation of 14.5 percent.He has a one percent probability of losing ________ percent or more in any given year.

Accepted Answer

Loss percent = 0.135 − 2.326 (0.145) = −20.23 percent

Question 5

A stock has a return of 16.9 percent,a standard deviation of 11.7 percent,and a beta of 1.50.The risk-free rate is 2.89 percent and the market risk premium is 8.45 percent.What is the Jensen-Treynor alpha of this stock?

Accepted Answer

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Question 6

You have a portfolio which has an average return of 10.3 percent.In any given year,you have a 2.5 percent probability of earning either a zero or a negative annual return.What is the approximate standard deviation of your portfolio?

Accepted Answer

0.0 = 0.103 − 1.96 (σ); σ = 5.26 percent

Question 7

Your portfolio has an expected annual return of 11.6 percent.What is the two-year expected return?

Accepted Answer

Two-year return = 2 × 0.116 = 23.2 percent

Question 8

What is Jensen's alpha of a portfolio comprised of 45 percent portfolio A and 55 percent of portfolio B?
 The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent.

Accepted Answer

Portfolio average return = (0.45 × 0.189) + (0.55 × 0.132) = 0.1577
Portfolio beta = (0.45 × 1.92) + (0.55 × 1.27) = 1.56
CAPM return = 0.031 + 1.56 (0.068) = 0.1373
Jensen's alpha = 0.1577 − 0.1373 = 2.04 percent

Question 9

A portfolio has an average return of 14.2 percent and a standard deviation of 12.85 percent.Given this,you should expect to lose at least ________ percent on an annual basis once every century.

Accepted Answer

Loss percent = 0.142 − 2.326 (0.1285) = −15.69 percent

Question 10

Your portfolio has a standard deviation of 12.3 percent and an average return of 9.6 percent.You have a 5 percent probability of losing ________ percent or more in any given year.

Accepted Answer

Loss percent = 0.96 − 1.645 (0.123) = −10.634 percent

Question 11

Angie owns a portfolio which has an expected annual return of 9.76 percent.What is the two-year expected return on her portfolio?

Accepted Answer

Two-year return = 2 × 9.76 = 19.52 percent

Question 12

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?

Accepted Answer

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Question 13

A portfolio consists of the following two funds.  What is the expected return on fund A?

Accepted Answer

Portfolio weight of A = $27,000 / ($27,000 + $33,000) = 0.45 Portfolio weight of B = $33,000 / ($27,000 + $33,000) = 0.55 E(R_A) = 15.7 percent

Question 14

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?

Accepted Answer

Jensen's alpha = 0.1428 − [(0.1174 − 0.0785) + 1.47 (0.0785)] = −1.15 percent

Question 15

A portfolio consists of the following two funds.  What is the Sharpe ratio of the portfolio?

Accepted Answer

Portfolio weight of A = $6,000 / ($6,000 + $14,000) = 0.30
Portfolio weight of B = $14,000 / ($6,000 + $14,000) = 0.70

Question 16

A portfolio consists of the following two funds.  What is the Sharpe ratio of the portfolio?

Accepted Answer

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Question 17

The Miller Fund's correlation with the market is 0.648.What percentage of the fund's movement can be explained by movements in the overall market?

Accepted Answer

R² = (0.648)² = 42 percent

Question 18

A portfolio has an actual return of 15.17 percent,a beta of 0.90,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?

Accepted Answer

Jensen's alpha = 0.1517 − [0.028 + 0.90 (0.134 − 0.028)] = 2.83 percent

Question 19

A fund has an alpha of 0.73 percent and a tracking error of 4.9 percent.What is the fund's information ratio?

Accepted Answer

Information ratio = 0.73 / 4.9 = 0.149

Question 20

What is the Treynor ratio of a portfolio comprised of 40 percent portfolio A,25 percent portfolio B,and 35 percent portfolio C?
 The risk-free rate is 2.9 percent and the market risk premium is 8.6 percent.

Accepted Answer

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Quiz 13: Performance Evaluation and Risk Management