IMC Performance Measurement and Attribution 2

Question 1

The Sharpe ratio measures excess return per unit of which type of risk?

Accepted Answer

Total risk (standard deviation)

Answer

Systematic risk (beta)

Answer

Tracking error

Answer

Downside deviation

Question 2

A portfolio returns 15%, the risk-free rate is 4%, and the portfolio's beta is 1.1. What is the Treynor ratio?

Accepted Answer

10.0

Answer

11.0

Answer

13.6

Answer

8.0

Question 3

Jensen's alpha is best described as:

Accepted Answer

The portfolio's actual return minus its CAPM-expected return given its level of systematic risk

Answer

Excess return over the risk-free rate divided by beta

Answer

The difference between portfolio return and benchmark return divided by tracking error

Answer

Portfolio return divided by its standard deviation

Question 4

Tracking error is defined as the standard deviation of:

Accepted Answer

Active returns (portfolio return minus benchmark return)

Answer

Portfolio absolute returns over time

Answer

Benchmark returns over time

Answer

Risk-free rate deviations from expectations

Question 5

The information ratio is calculated as:

Accepted Answer

Active return / Tracking error

Answer

Active return / Portfolio standard deviation

Answer

Portfolio return / Benchmark return

Answer

Excess return / Beta

Question 6

Which risk-adjusted performance measure is most appropriate when evaluating a portfolio that forms one component of a larger, well-diversified overall portfolio?

Accepted Answer

Treynor ratio

Answer

Sharpe ratio

Answer

Information ratio

Answer

Sortino ratio

Question 7

A portfolio manager achieves a Sharpe ratio of 0.85 compared to the market's Sharpe ratio of 0.60. What does this indicate?

Accepted Answer

The portfolio has earned more excess return per unit of total risk than the market

Answer

The portfolio has higher absolute returns than the market

Answer

The portfolio has a higher beta than the market

Answer

The portfolio holds less systematic risk than the market