CIMA Risk and Performance Measurement 2

Question 1

Which risk measure captures the average loss in the worst-case scenarios beyond the Value at Risk threshold?

Accepted Answer

Expected Shortfall (CVaR)

Answer

Expected Shortfall (Conditional VaR) measures the average loss in the tail beyond the VaR cutoff, providing a more complete picture of tail risk.

Question 2

A portfolio has an annualized return of 12% with a standard deviation of 18%. The risk-free rate is 3%. What is the Sharpe ratio?

Accepted Answer

0.50

Answer

Sharpe ratio = (12% - 3%) / 18% = 9% / 18% = 0.50.

Question 3

Which of the following best describes systematic risk in a portfolio context?

Accepted Answer

Market-wide risk that cannot be diversified away

Answer

Systematic risk is market-wide risk driven by macroeconomic factors that affects all assets and cannot be eliminated through diversification.

Question 4

The Treynor ratio differs from the Sharpe ratio in that it uses which measure in the denominator?

Accepted Answer

Beta

Answer

The Treynor ratio uses beta (systematic risk) in the denominator, while the Sharpe ratio uses standard deviation (total risk).

Question 5

An investor measures downside risk using a target return of 5%. Which risk metric is most appropriate?

Accepted Answer

Sortino ratio denominator (downside deviation)

Answer

Downside deviation (used in the Sortino ratio) only penalizes returns falling below a specified target, capturing downside risk relative to that threshold.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Risk and Performance Measurement 2