CIMA - Certified Investment Management Analyst Risk and Performance Measurement Questions and Answers

Question 1

An investment manager's portfolio has an upside capture ratio of 110 and a downside capture ratio of 90.
Which of the following statements BEST describes the manager's performance relative to their benchmark?

Accepted Answer

The manager captured more of the benchmark's gains in up markets than its losses in down markets, indicating favorable asymmetric performance.

Answer

The manager's portfolio is 10% more volatile than the benchmark in up markets and 10% less volatile in down markets.

Answer

The manager perfectly mirrored the benchmark's performance in both up and down markets.

Answer

The manager underperformed the benchmark in both up and down markets, capturing less of the upside and more of the downside.

Question 2

An analyst is comparing two well-diversified portfolios. Portfolio A has a higher Sharpe ratio, while Portfolio B has a higher Treynor ratio. Which measure is more appropriate for evaluating these portfolios, and why?

Accepted Answer

The Treynor ratio, because for well-diversified portfolios, unsystematic risk is considered negligible, making systematic risk (beta) the key determinant of performance.

Answer

The Sharpe ratio, because it considers total risk (systematic and unsystematic), which is always a more comprehensive measure.

Answer

Both are equally appropriate, and the choice depends on whether the analyst prefers using standard deviation or beta.

Answer

Neither is appropriate; Jensen's alpha should be used to determine the risk-adjusted excess return.

Question 3

A portfolio manager generated a return of 12%. The risk-free rate is 2%, the market return is 10%, and the portfolio's beta is 1.2. What is the portfolio's Jensen's alpha?

Accepted Answer

0.4%

Answer

-1.6%

Answer

2.0%

Answer

0.0%

Question 4

An investor is particularly concerned with the potential for large losses and wants to evaluate managers based on their performance during negative market movements. Which risk-adjusted performance measure would be MOST suitable for this investor's objective?

Accepted Answer

Sortino Ratio

Answer

Sharpe Ratio

Answer

Information Ratio

Answer

R-squared

Question 5

Which of the following BEST defines the Information Ratio (IR)?

Accepted Answer

The active return of a portfolio (return minus benchmark return), divided by its tracking error (the standard deviation of the active return).

Answer

The excess return of a portfolio over the risk-free rate, divided by its total risk (standard deviation).

Answer

The excess return of a portfolio over its benchmark, divided by its systematic risk (beta).

Answer

The percentage of a portfolio's movements that can be explained by movements in its benchmark index.

Question 6

A portfolio has a beta of 0.8 and an R-squared of 0.90 against its benchmark. How should an analyst interpret these figures?

Accepted Answer

The portfolio is 20% less volatile than its benchmark, and 90% of its return movements are explained by movements in the benchmark.

Answer

The portfolio is 20% less volatile than its benchmark, and 90% of its returns are attributable to active management.

Answer

The portfolio is 80% as volatile as its benchmark, and active management explains 10% of its returns.

Answer

The portfolio's returns are 80% correlated with the benchmark, and its unsystematic risk is 10%.