AAMS Risk, Return & Investment Performance 2

Question 1

A portfolio has a standard deviation of 12% and the market standard deviation is 10%. The correlation between the portfolio and market is 0.8. What is the portfolio's beta?

Accepted Answer

0.96

Answer

Beta = (portfolio std dev / market std dev) × correlation = (12/10) × 0.8 = 0.96.

Question 2

Which performance metric penalizes a portfolio manager only for downside volatility, not total volatility?

Accepted Answer

Sortino ratio

Answer

The Sortino ratio uses downside deviation in the denominator rather than total standard deviation.

Question 3

An investor's portfolio returned 9% while the benchmark returned 7%. The portfolio's tracking error was 3%. What is the information ratio?

Accepted Answer

0.67

Answer

Information ratio = active return / tracking error = (9% − 7%) / 3% = 0.67.

Question 4

When comparing two portfolios with different betas, which measure is most appropriate for evaluating risk-adjusted performance?

Accepted Answer

Treynor ratio

Answer

The Treynor ratio uses beta as the risk measure, making it ideal for comparing portfolios with different levels of systematic risk.

Question 5

A bond's duration is 6 years and interest rates rise by 1%. Approximately what happens to the bond's price?

Accepted Answer

Falls by 6%

Answer

Using the duration approximation, price change ≈ −duration × Δy = −6 × 1% = −6%.

(AAMS) Accredited Asset Management Specialist Practice Test

(AAMS) Accredited Asset Management Specialist Practice Test

AAMS Risk, Return & Investment Performance 2