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

Standard deviation measures how much returns deviate from the mean, representing the total risk of an investment.

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 Sharpe ratio measures excess return above the risk-free rate per unit of standard deviation, so 1.5 means 1.5 units of excess return per unit of total risk.

Question 3

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

Accepted Answer

-1 to +1

Answer

The correlation coefficient always ranges from -1 (perfect negative correlation) to +1 (perfect positive correlation), with 0 indicating no linear relationship.

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

The coefficient of variation (standard deviation divided by mean) normalizes risk relative to return, allowing comparison across funds with different absolute risk and return levels.

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

R-squared, the coefficient of determination, represents the proportion of variance in the dependent variable that is predictable from the independent variable(s), ranging from 0 to 1.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM Quantitative Methods & Statistics for Fund Management