CFM Quantitative Methods & Statistics for Fund Management

Question 1

What does standard deviation measure in portfolio analysis?

Accepted Answer

The dispersion of returns around the mean

Answer

The average return of a portfolio

Answer

The correlation between two assets

Answer

The maximum drawdown of a portfolio

Question 2

A fund manager calculates a Sharpe ratio of 1.5. What does this indicate?

Accepted Answer

The fund earned 1.5 units of excess return per unit of total risk

Answer

The fund lost 1.5% per unit of risk

Answer

The fund's beta is 1.5

Answer

The fund has 1.5% standard deviation

Question 3

What is the valid range of the correlation coefficient between two assets?

Accepted Answer

-1 to +1

Answer

0 to 1

Answer

-1 to 0

Answer

-∞ to +∞

Question 4

Which statistical measure is most useful for comparing risk-adjusted performance across funds with different absolute risk levels?

Accepted Answer

Coefficient of variation

Answer

Absolute return

Answer

Standard deviation alone

Answer

Arithmetic mean return

Question 5

In regression analysis, what does R-squared (R²) measure?

Accepted Answer

The proportion of variance in the dependent variable explained by the independent variable(s)

Answer

The slope of the regression line

Answer

The statistical significance of the intercept

Answer

The number of data points in the regression

Question 6

What is the primary purpose of Monte Carlo simulation in fund management?

Accepted Answer

To model potential outcomes by running many random simulations based on input distributions

Answer

To calculate historical average returns

Answer

To determine the exact future value of an investment

Answer

To calculate the correlation between two assets

Question 7

What does a p-value below 0.05 indicate in hypothesis testing for a fund performance study?

Accepted Answer

The result is statistically significant at the 5% significance level

Answer

The null hypothesis is definitely true

Answer

There is a 95% chance the alternative hypothesis is wrong

Answer

The sample size is too small to draw conclusions