Investment Jobs Portfolio Analysis Test 1

Question 1

Which portfolio performance metric measures return per unit of total risk (standard deviation)?

Accepted Answer

Sharpe ratio

Answer

The Sharpe ratio divides excess return (return minus risk-free rate) by the portfolio's standard deviation to measure return per unit of total risk.

Question 2

Beta in portfolio analysis measures a security's sensitivity relative to what?

Accepted Answer

The market portfolio

Answer

Beta measures the degree to which a security's returns move in relation to the overall market (typically represented by an index like the S&P 500).

Question 3

What does a negative alpha indicate about a portfolio manager's performance?

Accepted Answer

The portfolio underperformed its benchmark on a risk-adjusted basis

Answer

A negative alpha means the portfolio earned less return than predicted by its level of risk relative to the benchmark, indicating underperformance.

Question 4

Which correlation coefficient value indicates perfect negative correlation between two assets?

Accepted Answer

-1

Answer

A correlation coefficient of -1 indicates that two assets move in exactly opposite directions, providing maximum diversification benefit.

Question 5

The efficient frontier in Modern Portfolio Theory represents portfolios that offer:

Accepted Answer

Maximum return for a given level of risk

Answer

The efficient frontier plots portfolios that achieve the maximum expected return for each level of risk (standard deviation), representing the optimal risk-return tradeoff.

Investment Practice Test

Investment Practice Test

Investment Jobs Portfolio Analysis Test 1