P2.T8. Investment Management

Practice questions for investment management and risk management

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  1. Kavita.bhangdia

    Tracking error

    Thanks David.. they just dont seem to make anything easy for us.. do they?:( Regards, Kavita
    Thanks David.. they just dont seem to make anything easy for us.. do they?:( Regards, Kavita
    Thanks David.. they just dont seem to make anything easy for us.. do they?:( Regards, Kavita
    Thanks David.. they just dont seem to make anything easy for us.. do they?:( Regards, Kavita
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  2. Manish Vij

    Topic 8 Investment Management - Practice Question Sets

    Hi Manish, can you please see answer to same question here, thanks
    Hi Manish, can you please see answer to same question here, thanks
    Hi Manish, can you please see answer to same question here, thanks
    Hi Manish, can you please see answer to same question here, thanks
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  3. rickm123

    time and dollar weighted

    Hi david, can you re -upload? pls quote="David Harper CFA FRM CIPM, post: 16609, member: 10"]Hi Rick, I won't have time to post the updated 8.c.1 this week, after all (I need to finish the mock exams). Here is the XLS that I used to develop question T8.15, this XLS shows dollars and time-weighted: In regard to the HP12c, sure it can do the dollar-weighted return b/c the DWR is an IRR,...
    Hi david, can you re -upload? pls quote="David Harper CFA FRM CIPM, post: 16609, member: 10"]Hi Rick, I won't have time to post the updated 8.c.1 this week, after all (I need to finish the mock exams). Here is the XLS that I used to develop question T8.15, this XLS shows dollars and time-weighted: In regard to the HP12c, sure it can do the dollar-weighted return b/c the DWR is an IRR,...
    Hi david, can you re -upload? pls quote="David Harper CFA FRM CIPM, post: 16609, member: 10"]Hi Rick, I won't have time to post the updated 8.c.1 this week, after all (I need to finish the mock exams). Here is the XLS that I used to develop question T8.15, this XLS shows dollars and...
    Hi david, can you re -upload? pls quote="David Harper CFA FRM CIPM, post: 16609, member: 10"]Hi Rick, I won't have time to post the updated 8.c.1 this week, after all (I need to finish the...
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  4. Suzanne Evans

    Question 9: Fama-French factor

    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? ...
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  5. Suzanne Evans

    Question 99: Trades

    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) - RF]*beta(i), Excess return (i) = Excess return (market) * beta(i), such that Excess return (i) / beta(i) = Excess return (market) = constant The use of marginal VaR follows as they are so nearly...
    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) - RF]*beta(i), Excess return (i) = Excess return (market) * beta(i), such that Excess return (i) / beta(i) = Excess return (market) = constant The use of marginal VaR follows as they are so nearly...
    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) - RF]*beta(i), Excess return (i) = Excess return (market) * beta(i), such that Excess return (i) /...
    Hi srinivas, This is from the (difficult) section 7.5.2 in Chapter 7 of Jorion (Portfolio Risk: Analytical Methods). He says it comes from CAPM where: Return(i) - RF = [Return (Market) -...
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  6. Suzanne Evans

    Question 98: Porfolio risk

    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A Explanation: Keep in mind the EFFICIENT FRONTIER STARTS at the minimum risk portfolio (i.e., the portfolio with the lowest volatility) which here is the GLOBAL MINIMUM. Answers (C) and (D) refer to...
    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A Explanation: Keep in mind the EFFICIENT FRONTIER STARTS at the minimum risk portfolio (i.e., the portfolio with the lowest volatility) which here is the GLOBAL MINIMUM. Answers (C) and (D) refer to...
    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A Explanation: Keep in mind the EFFICIENT FRONTIER STARTS at the minimum risk portfolio (i.e., the...
    Question: When does portfolio risk reach a global minimum? A. Marginal VaRs are equal B. Marginal VaRs = 1.0 C. Highest Sharpe ratio D. (expected return/beta) is constant Answer: A ...
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  7. Suzanne Evans

    Question 97: Component VaR

    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to selected portfolio return D. You cannot (must at least be elliptical) Answer: C Explanation: The idea is to identify a portfolio return (based on sorted historical portfolio returns) that...
    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to selected portfolio return D. You cannot (must at least be elliptical) Answer: C Explanation: The idea is to identify a portfolio return (based on sorted historical portfolio returns) that...
    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to selected portfolio return D. You cannot (must at least be elliptical) Answer: C Explanation: The...
    Question: What is Jorion's recommendation to compute component VaR when the distribution is not elliptical? A. Use sample beta coefficient B. Use marginal VaR C. Uses positions linked to...
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  8. Suzanne Evans

    Question 96: Component VaR and percentage contribution

    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8 and the position's marginal VaR is 0.24. What is the (i) the position's component VaR and (ii) the percentage contribution of the position to portfolio VaR? A. 1.2 millon and 4.0% B. 2.4 million...
    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8 and the position's marginal VaR is 0.24. What is the (i) the position's component VaR and (ii) the percentage contribution of the position to portfolio VaR? A. 1.2 millon and 4.0% B. 2.4 million...
    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8 and the position's marginal VaR is 0.24. What is the (i) the position's component VaR and (ii) the...
    Question: A $100 million portfolio has a portfolio value at risk (VaR) of $30 million. A trader has a $10 million position where the beta of the trader's return with the portfolio's return is 0.8...
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  9. Suzanne Evans

    Question 95: Formula

    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? A. -W x [COV(i, portfolio) / variance of i] B. -W x [COV(i, portfolio) / standard deviation of i] C. -W x [variance of I / COV(i, portfolio)] D. (variance of i) x [COV(i, portfolio) / W] ...
    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? A. -W x [COV(i, portfolio) / variance of i] B. -W x [COV(i, portfolio) / standard deviation of i] C. -W x [variance of I / COV(i, portfolio)] D. (variance of i) x [COV(i, portfolio) / W] ...
    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? A. -W x [COV(i, portfolio) / variance of i] B. -W x [COV(i, portfolio) / standard deviation of i] ...
    Question: If W is the portfolio value, (i) is an asset with a single risk factor, and (b) is the beta between the position's and the portfolio's returns, what is the formula for the best hedge? ...
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  10. Suzanne Evans

    Question 94: Incremental VaR

    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has a volatility of 20%. At 99% confidence, what is an approximation of the incremental VaR given an additional investment of $1 million in Asset B? A. $233,000 B. $298,000 C. $333,000 D. $416,000 ...
    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has a volatility of 20%. At 99% confidence, what is an approximation of the incremental VaR given an additional investment of $1 million in Asset B? A. $233,000 B. $298,000 C. $333,000 D. $416,000 ...
    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has a volatility of 20%. At 99% confidence, what is an approximation of the incremental VaR given an...
    Question: A $20 million portfolio consists of only two equally-weighted and uncorrelated positions in Assets A & B. Asset A ($10 million) has a volatility of 10% and Asset B (also $10 million) has...
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  11. Suzanne Evans

    Question 93: Marginal VaR

    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR is a first-order partial derivative; III. Marginal VaR = (Portfolio VaR/Portfolio size)(beta of position's return with portfolio's return); IV. Marginal VaR approximates incremental VaR for small...
    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR is a first-order partial derivative; III. Marginal VaR = (Portfolio VaR/Portfolio size)(beta of position's return with portfolio's return); IV. Marginal VaR approximates incremental VaR for small...
    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR is a first-order partial derivative; III. Marginal VaR = (Portfolio VaR/Portfolio size)(beta of...
    Question: Which are true statements about marginal value at risk (VaR)? I. Marginal VaR = (critical value)[Covariance between position and portfolio returns/portfolio volatility]; II. Marginal VaR...
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  12. Suzanne Evans

    Question 92: Marginal VaR and component VaR

    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30 million. What is the (i) marginal VaR and (ii) component VaR? A. 0.2 and 2.0 million B. 0.2 and 2.8 million C. 0.45 and 4.5 million D. 1.2 and 2.4 million Answer: C Explanation: Marginal VaR =...
    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30 million. What is the (i) marginal VaR and (ii) component VaR? A. 0.2 and 2.0 million B. 0.2 and 2.8 million C. 0.45 and 4.5 million D. 1.2 and 2.4 million Answer: C Explanation: Marginal VaR =...
    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30 million. What is the (i) marginal VaR and (ii) component VaR? A. 0.2 and 2.0 million B. 0.2 and 2.8...
    Question: A trader has a $10 million position in a $100 million portfolio where the beta of the trader's return with the portfolio's return is 1.5 and the portfolio value at risk (VaR) is $30...
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  13. Suzanne Evans

    Question 91: Portfolios standard deviation

    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair of returns is 0.5, what is the portfolio's standard deviation? A. 5.0% B. 6.25% C. 7.75% D. 10.0% Answer: C Explanation: Under these circumstances, portfolio volatility = (asset...
    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair of returns is 0.5, what is the portfolio's standard deviation? A. 5.0% B. 6.25% C. 7.75% D. 10.0% Answer: C Explanation: Under these circumstances, portfolio volatility = (asset...
    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair of returns is 0.5, what is the portfolio's standard deviation? A. 5.0% B. 6.25% C. 7.75% D....
    Question: A portfolio has five (5) positions with equal weights, standard deviations and correlations between them. If the standard deviation for each is 10% and the correlation between each pair...
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  14. Suzanne Evans

    Question 90: Portfolio VaR

    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the desired confidence is 99%, what is the portfolio VaR if (i) the assets are uncorrelated [i.e.., correlation = 0] and (ii) the assets are perfectly correlated [i.e., correlation = -1] A. $2.56 and...
    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the desired confidence is 99%, what is the portfolio VaR if (i) the assets are uncorrelated [i.e.., correlation = 0] and (ii) the assets are perfectly correlated [i.e., correlation = -1] A. $2.56 and...
    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the desired confidence is 99%, what is the portfolio VaR if (i) the assets are uncorrelated [i.e..,...
    Question: Assume a two-asset portfolio with a portfolio value of $20 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. If the...
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  15. Suzanne Evans

    Question 8: Strategies

    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B Explanation: Equity market neutral tries to exploit price discrepancies without exposure to the broad market...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B Explanation: Equity market neutral tries to exploit price discrepancies without exposure to the broad market...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B ...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short...
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  16. Suzanne Evans

    Question 89: VaR

    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the individual VaR of Asset B? A. $822,000 B. $1.645 million C. $2.16 million D. $2.33 million Answer: B Explanation: The individual VaR of Asset...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the individual VaR of Asset B? A. $822,000 B. $1.645 million C. $2.16 million D. $2.33 million Answer: B Explanation: The individual VaR of Asset...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the individual VaR of Asset B? A. $822,000 B. $1.645...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The...
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  17. Suzanne Evans

    Question 88: Diversified portfolio VaR

    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the diversified portfolio VaR under 95% confidence? A. $1.96 million B. $2.18 million C. $2.82 million D. $3.16 million Answer: B Explanation:...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the diversified portfolio VaR under 95% confidence? A. $1.96 million B. $2.18 million C. $2.82 million D. $3.16 million Answer: B Explanation:...
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The correlation between Asset A & B is 0.5. What is the diversified portfolio VaR under 95% confidence? A....
    Question: Assume a two-asset portfolio with a portfolio value of $10 million. Each asset weighs 50% of the portfolio. Asset A has a volatility of 10% and asset B has a volatility of 20%. The...
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  18. Suzanne Evans

    Question 87: Future strategies

    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation: Trend-following is the dominant trading style for systematic manager futures strategies. The manager relies on technical indicators (e.g., momentum, relative size of moving averages, or break-out...
    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation: Trend-following is the dominant trading style for systematic manager futures strategies. The manager relies on technical indicators (e.g., momentum, relative size of moving averages, or break-out...
    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation: Trend-following is the dominant trading style for systematic manager futures strategies. The manager...
    Question: Jaeger claims that most systematic managed futures strategies are: A. Trend-followers B. Mean-reversion plays C. Volatility basis D. Basis risk based Answer: A Explanation:...
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  19. Suzanne Evans

    Question 86: Model globe macro strategies

    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D. Discretionary versus systematic Answer: D Explanation: Discretionary managers employ various "opportunistic" strategies (style drift is built-in); Systematic managers use well-defined trading models
    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D. Discretionary versus systematic Answer: D Explanation: Discretionary managers employ various "opportunistic" strategies (style drift is built-in); Systematic managers use well-defined trading models
    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D. Discretionary versus systematic Answer: D Explanation: Discretionary managers employ various...
    Question: Jaeger says the key distinction between modern global macro strategies is: A. Fundamental versus technical B. Sector versus style C. Directional versus market-neutral D....
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  20. Suzanne Evans

    Question 85: Risks

    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and operational Answer: A Explanation: Regulation D managers tend to invest in small companies with limited means to raise capital. The investment is illiquid before registration and limited in...
    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and operational Answer: A Explanation: Regulation D managers tend to invest in small companies with limited means to raise capital. The investment is illiquid before registration and limited in...
    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and operational Answer: A Explanation: Regulation D managers tend to invest in small companies with...
    Question: A manager who employs a "Regulation D" strategy is exposed primarily to which risks: A. Credit and liquidity B. Liquidity and regulatory C. Regulatory and Market D. Market and...
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