Free CPM Performance Measurement Questions and Answers

Question 1

What does the Sharpe Ratio measure in portfolio performance?

Accepted Answer

Excess return per unit of total risk

Answer

Return relative to inflation

Answer

Asset diversification level

Answer

Interest rate changes

Question 2

Which performance measure isolates a manager’s skill at generating returns independent of market movements?

Accepted Answer

Alpha

Answer

Beta

Answer

Standard deviation

Answer

R-squared

Question 3

Why is benchmarking important in portfolio performance measurement?

Accepted Answer

To compare performance against a market standard

Answer

To avoid reporting losses

Answer

To limit investment options

Answer

To reduce portfolio risk

Question 4

Which metric measures a portfolio’s sensitivity to overall market movements?

Accepted Answer

Beta

Answer

Alpha

Answer

Sharpe Ratio

Answer

Tracking error

Question 5

What does standard deviation represent in portfolio performance?

Accepted Answer

Volatility of returns around the mean

Answer

Average portfolio return

Answer

Return above benchmark

Answer

Interest rate exposure

Question 6

What does tracking error measure?

Accepted Answer

Portfolio returns against its benchmark

Answer

Risk-free rate changes

Answer

Market liquidity risk

Answer

Regulatory compliance

Question 7

Why is risk-adjusted performance measurement preferred over absolute returns?

Accepted Answer

To factor in the risk taken to earn returns

Answer

Because absolute returns ignore risk levels

Answer

To highlight expenses

Answer

To simplify reporting

Question 8

Which performance report component details the reason behind over- or under-performance?

Accepted Answer

Attribution analysis

Answer

Standard deviation

Answer

Beta summary

Answer

Market capitalization ranking

Question 9

Which international standard ensures the consistency of performance reporting for investment managers?

Accepted Answer

GIPS

Answer

GAAP

Answer

SOX

Answer

IFRS