Portfolio Analysis Test Flashcards
6 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Portfolio Analysis Test flashcards as text
Which risk measure estimates the maximum potential loss in a portfolio over a given time period at a specified confidence level?
Answer: Value at Risk (VaR)
Value at Risk (VaR) estimates the maximum loss expected on a portfolio over a defined time horizon at a given confidence level (e.g., 95% or 99%).
In the Capital Asset Pricing Model (CAPM), what does the security market line (SML) represent?
Answer: The relationship between systematic risk (beta) and expected return
The Security Market Line plots expected return as a linear function of beta (systematic risk), showing the required return for any level of market risk.
Which type of risk can be eliminated through diversification?
Answer: Unsystematic (idiosyncratic) risk
Unsystematic (or idiosyncratic) risk is company-specific risk that can be diversified away by holding a broad portfolio of uncorrelated assets.
A portfolio manager uses the Treynor ratio to evaluate performance. What risk measure does this ratio use?
Answer: Beta
The Treynor ratio divides excess portfolio return by beta (systematic risk), making it appropriate for evaluating diversified portfolios that are part of a larger portfolio.
What is the primary purpose of portfolio rebalancing?
Answer: To restore the portfolio to its target asset allocation
Portfolio rebalancing involves buying and selling assets to bring the portfolio back to its intended asset allocation after market movements cause drift.
Which analytical framework divides portfolio returns into asset allocation, security selection, and interaction effects?
Answer: Brinson-Hood-Beebower performance attribution
The Brinson-Hood-Beebower (BHB) model is a widely used framework for attributing portfolio performance to asset allocation decisions versus security selection.