CIFC Data Analysis and Interpretation 2 — Questions and Answers
Question 1: A mutual fund's standard deviation is 12% and its mean return is 8%. What does this indicate about the fund's risk profile?
- The fund is highly predictable with minimal volatility
- Returns can typically range from -4% to 20% within one standard deviation (Correct answer)
- The fund guarantees a minimum return of 8%
- Standard deviation above 10% means the fund is unsuitable for all investors
Correct answer: Returns can typically range from -4% to 20% within one standard deviation
One standard deviation means returns typically fall within one SD above or below the mean, so 8% ± 12% gives a range of -4% to 20%.
Question 2: Which measure best captures the risk-adjusted return of a portfolio compared to a benchmark index?
- Alpha (Correct answer)
- Beta
- R-squared
- Correlation coefficient
Correct answer: Alpha
Alpha measures a portfolio's excess return relative to its benchmark after adjusting for risk, indicating manager skill.
Question 3: A fund reports a trailing 3-year annualized return of 9%. An investor contributed $10,000 three years ago. Approximately what is the current value?
- $12,700
- $12,950 (Correct answer)
- $13,300
- $13,700
Correct answer: $12,950
Using compound growth: $10,000 × (1.09)^3 ≈ $10,000 × 1.295 ≈ $12,950.
Question 4: When analyzing a fund's performance chart, a consistently upward-sloping line with few dips most likely indicates:
- High volatility and high returns
- Low volatility and relatively stable positive returns (Correct answer)
- A fund that tracks a highly cyclical sector
- Returns that are inversely correlated with the market
Correct answer: Low volatility and relatively stable positive returns
A smooth upward slope with few dips indicates low volatility and consistent positive performance over the period.
Question 5: A balanced fund has 60% equities and 40% fixed income. If equities return 10% and fixed income returns 4%, what is the blended portfolio return?
- 7.0%
- 7.6% (Correct answer)
- 8.2%
- 8.6%
Correct answer: 7.6%
Blended return = (0.60 × 10%) + (0.40 × 4%) = 6% + 1.6% = 7.6%.
Question 6: Which of the following best describes a positively skewed return distribution for a mutual fund?
- Most returns cluster above the mean with a long left tail
- Most returns cluster below the mean with a long right tail (Correct answer)
- Returns are symmetrically distributed around the mean
- The median and mean are always equal
Correct answer: Most returns cluster below the mean with a long right tail
Positive skew means the tail extends to the right, so most returns fall below the mean but occasional large gains pull the mean upward.
Question 7: A fund's correlation with the broad market is 0.95. This means the fund:
- Moves almost identically with the market (Correct answer)
- Is completely independent of market movements
- Loses 0.95% for every 1% market gain
- Has a beta of 0.95
Correct answer: Moves almost identically with the market
A correlation of 0.95 (close to 1.0) indicates the fund's returns move almost in lockstep with the broad market.
CIFC Data Analysis and Interpretation 2
A mutual fund's standard deviation is 12% and its mean return is 8%.
What does this indicate about the fund's risk profile?