CFM Quantitative Methods & Statistics for Fund Management 2

Question 1

How does the Sortino ratio differ from the Sharpe ratio in risk measurement?

Accepted Answer

It uses downside deviation instead of total standard deviation

Answer

It uses total standard deviation instead of downside deviation

Answer

It measures correlation instead of volatility

Answer

It excludes the risk-free rate from the calculation

Question 2

What does Value at Risk (VaR) at a 95% confidence level represent?

Accepted Answer

The loss not expected to be exceeded with 95% probability over a given time horizon

Answer

The maximum possible loss in any scenario

Answer

The average loss over the worst 5% of outcomes

Answer

The standard deviation of returns multiplied by 1.96

Question 3

In the Capital Asset Pricing Model (CAPM), what does beta represent?

Accepted Answer

A measure of a security's sensitivity to market movements

Answer

The expected return of the market portfolio

Answer

The risk-free rate of return

Answer

The alpha generated by active management

Question 4

In portfolio optimization, what does the efficient frontier represent?

Accepted Answer

The set of portfolios offering the maximum expected return for a given level of risk

Answer

The set of portfolios with the highest possible return regardless of risk

Answer

The single minimum-risk portfolio only

Answer

The portfolio with the highest Sharpe ratio

Question 5

What does positive skewness in a fund's return distribution indicate?

Accepted Answer

The distribution has a longer right tail, indicating occasional large positive returns

Answer

The distribution has a longer left tail than right tail

Answer

The distribution is perfectly symmetric around the mean

Answer

The mean is less than the median

Question 6

What does high kurtosis (leptokurtosis) indicate about a fund's return distribution?

Accepted Answer

The distribution has fat tails with more probability of extreme outcomes than a normal distribution

Answer

The distribution has a flat shape with thin tails

Answer

The distribution is perfectly normal

Answer

The distribution has negative skewness

Question 7

In time series analysis, what is autocorrelation?

Accepted Answer

The correlation of a return series with its own lagged values

Answer

The correlation between two different asset return series

Answer

The correlation between a fund's returns and its benchmark

Answer

The average pairwise correlation among all assets in a portfolio