# P2.T8. Investment Management

Practice questions for investment management and risk management

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1. ### Question 96: Risk management systems

Question: Which is a primary reason, says Jorion, that money managers are installing risk management systems? A. Add short bets to opportunity set B. Competitive pressure/advantage C. Regulatory mandate D. They aren't, trend is away Answer: B Explanation: Jorion says managers are increasingly under pressure by clients and that a lack of risk management may be a competitive...
Question: Which is a primary reason, says Jorion, that money managers are installing risk management systems? A. Add short bets to opportunity set B. Competitive pressure/advantage C. Regulatory mandate D. They aren't, trend is away Answer: B Explanation: Jorion says managers are increasingly under pressure by clients and that a lack of risk management may be a competitive...
Question: Which is a primary reason, says Jorion, that money managers are installing risk management systems? A. Add short bets to opportunity set B. Competitive pressure/advantage C. Regulatory mandate D. They aren't, trend is away Answer: B Explanation: Jorion says managers are...
Question: Which is a primary reason, says Jorion, that money managers are installing risk management systems? A. Add short bets to opportunity set B. Competitive pressure/advantage C....
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2. ### Question 95: Single global custodian

Question: Which is NOT TRUE about delegating to single global custodian? A. Consistent with VaR philosophy B. Positions reports can show consolidated exposures C. Trend is away from global custodian D. Large plans may prefer internal system Answer: C Explanation: Jorion says the trend is toward, not away, from the use of a single global custodian.
Question: Which is NOT TRUE about delegating to single global custodian? A. Consistent with VaR philosophy B. Positions reports can show consolidated exposures C. Trend is away from global custodian D. Large plans may prefer internal system Answer: C Explanation: Jorion says the trend is toward, not away, from the use of a single global custodian.
Question: Which is NOT TRUE about delegating to single global custodian? A. Consistent with VaR philosophy B. Positions reports can show consolidated exposures C. Trend is away from global custodian D. Large plans may prefer internal system Answer: C Explanation: Jorion says the...
Question: Which is NOT TRUE about delegating to single global custodian? A. Consistent with VaR philosophy B. Positions reports can show consolidated exposures C. Trend is away from global...
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3. ### Question 94: VaR

Question: If a manager observes a large jump in value at risk (VaR) of a fund, which is the least likely according to Jorion? A. Higher confidence level B. Manager(s) taking more risk C. Different managers making similar bets D. More volatile markets Answer: A Explanation: Jorion gives the following three possible explanations for a jump in fund VaR: 1. A manager takes more risk:...
Question: If a manager observes a large jump in value at risk (VaR) of a fund, which is the least likely according to Jorion? A. Higher confidence level B. Manager(s) taking more risk C. Different managers making similar bets D. More volatile markets Answer: A Explanation: Jorion gives the following three possible explanations for a jump in fund VaR: 1. A manager takes more risk:...
Question: If a manager observes a large jump in value at risk (VaR) of a fund, which is the least likely according to Jorion? A. Higher confidence level B. Manager(s) taking more risk C. Different managers making similar bets D. More volatile markets Answer: A Explanation: Jorion...
Question: If a manager observes a large jump in value at risk (VaR) of a fund, which is the least likely according to Jorion? A. Higher confidence level B. Manager(s) taking more risk C....
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4. ### Question 93: Risk

Question: A plan sponsor is able to absorb fluctuations (high volatility) in its defined benefit plan's surplus because it can fund contributions easily and its own operating profits tend to be inversely correlated to pension plan performance (i.e., operating profits are high when surplus falls). Which of the following sets of risk are likely to be lowest? A. Surplus and cash flow B....
Question: A plan sponsor is able to absorb fluctuations (high volatility) in its defined benefit plan's surplus because it can fund contributions easily and its own operating profits tend to be inversely correlated to pension plan performance (i.e., operating profits are high when surplus falls). Which of the following sets of risk are likely to be lowest? A. Surplus and cash flow B....
Question: A plan sponsor is able to absorb fluctuations (high volatility) in its defined benefit plan's surplus because it can fund contributions easily and its own operating profits tend to be inversely correlated to pension plan performance (i.e., operating profits are high when surplus...
Question: A plan sponsor is able to absorb fluctuations (high volatility) in its defined benefit plan's surplus because it can fund contributions easily and its own operating profits tend to be...
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5. ### Question 92: Negative surplus

Question: A pension plan has $1 billion in assets and$950 million in liabilities. The expected return on surplus, scaled by assets, is 5% and the volatility of the surplus is 10%. At the 99% confidence level, what is the negative surplus associated with a VaR level of loss? A. -$78 million B. -$92 million C. -$133 million D. -$156 million Answer: C Explanation: Return on surplus =...
Question: A pension plan has $1 billion in assets and$950 million in liabilities. The expected return on surplus, scaled by assets, is 5% and the volatility of the surplus is 10%. At the 99% confidence level, what is the negative surplus associated with a VaR level of loss? A. -$78 million B. -$92 million C. -$133 million D. -$156 million Answer: C Explanation: Return on surplus =...
Question: A pension plan has $1 billion in assets and$950 million in liabilities. The expected return on surplus, scaled by assets, is 5% and the volatility of the surplus is 10%. At the 99% confidence level, what is the negative surplus associated with a VaR level of loss? A. -$78 million ... Question: A pension plan has$1 billion in assets and $950 million in liabilities. The expected return on surplus, scaled by assets, is 5% and the volatility of the surplus is 10%. At the 99%... Replies: 0 Views: 21 6. ### Question 91: Tracking error Question: Which if the following risks is often measured with tracking error (TE)? A. Absolute risk B. Relative risk C. Policy-mix risk D. Active-management risk Answer: B Explanation: Absolute risk is the risk of a dollar loss over the horizon (a.k.a., asset risk). Relative risk is the risk of a dollar loss in a fund relative to its benchmark. The shortfall is measured as the... Question: Which if the following risks is often measured with tracking error (TE)? A. Absolute risk B. Relative risk C. Policy-mix risk D. Active-management risk Answer: B Explanation: Absolute risk is the risk of a dollar loss over the horizon (a.k.a., asset risk). Relative risk is the risk of a dollar loss in a fund relative to its benchmark. The shortfall is measured as the... Question: Which if the following risks is often measured with tracking error (TE)? A. Absolute risk B. Relative risk C. Policy-mix risk D. Active-management risk Answer: B Explanation: Absolute risk is the risk of a dollar loss over the horizon (a.k.a., asset risk). Relative risk is... Question: Which if the following risks is often measured with tracking error (TE)? A. Absolute risk B. Relative risk C. Policy-mix risk D. Active-management risk Answer: B Explanation:... Replies: 0 Views: 21 7. ### Question 90: Special risk measurement problems Question: Jorion cites several reasons that hedge funds pose special risk measurement problems. Which of the following is NOT one of those reasons? A. Asymmetric compensation B. Heterogeneous population C. Leverage D. Illiquid investments Answer: A Explanation: Hedge funds do have asymmetric compensation plans (and, indeed, this complicates performance attribution net-of-fees), but... Question: Jorion cites several reasons that hedge funds pose special risk measurement problems. Which of the following is NOT one of those reasons? A. Asymmetric compensation B. Heterogeneous population C. Leverage D. Illiquid investments Answer: A Explanation: Hedge funds do have asymmetric compensation plans (and, indeed, this complicates performance attribution net-of-fees), but... Question: Jorion cites several reasons that hedge funds pose special risk measurement problems. Which of the following is NOT one of those reasons? A. Asymmetric compensation B. Heterogeneous population C. Leverage D. Illiquid investments Answer: A Explanation: Hedge funds do have... Question: Jorion cites several reasons that hedge funds pose special risk measurement problems. Which of the following is NOT one of those reasons? A. Asymmetric compensation B. Heterogeneous... Replies: 0 Views: 15 8. ### Question 89: Investment process Question: Which are the two basic steps in the investment process, according to Jorion? A. Active manager selection and performance attribution B. Active manager selection and rebalancing C. Asset allocation study and active manager selection D. Asset allocation study and rebalancing Answer: C Explanation: Two basic steps of the investment process: 1. A consultant provides a... Question: Which are the two basic steps in the investment process, according to Jorion? A. Active manager selection and performance attribution B. Active manager selection and rebalancing C. Asset allocation study and active manager selection D. Asset allocation study and rebalancing Answer: C Explanation: Two basic steps of the investment process: 1. A consultant provides a... Question: Which are the two basic steps in the investment process, according to Jorion? A. Active manager selection and performance attribution B. Active manager selection and rebalancing C. Asset allocation study and active manager selection D. Asset allocation study and rebalancing ... Question: Which are the two basic steps in the investment process, according to Jorion? A. Active manager selection and performance attribution B. Active manager selection and rebalancing C.... Replies: 0 Views: 16 9. ### Question 88: Risk Characteristic Question: In regard each of the following characteristics, respectively, is the risk characteristic more reflective of the sell-side ("sell" or the buy-side ("buy"? (i) Annual time horizon, (ii) rapid turnover, (iii) high leverage, (iv) VaR risk metric, (v) tracking error risk metric, (vi) reliance on benchmarks as risk control, and (vii) reliance on position limits as risk control ... Question: In regard each of the following characteristics, respectively, is the risk characteristic more reflective of the sell-side ("sell" or the buy-side ("buy"? (i) Annual time horizon, (ii) rapid turnover, (iii) high leverage, (iv) VaR risk metric, (v) tracking error risk metric, (vi) reliance on benchmarks as risk control, and (vii) reliance on position limits as risk control ... Question: In regard each of the following characteristics, respectively, is the risk characteristic more reflective of the sell-side ("sell" or the buy-side ("buy"? (i) Annual time horizon, (ii) rapid turnover, (iii) high leverage, (iv) VaR risk metric, (v) tracking error risk metric,... Question: In regard each of the following characteristics, respectively, is the risk characteristic more reflective of the sell-side ("sell" or the buy-side ("buy"? (i) Annual time... Replies: 0 Views: 16 10. ### Question 87: Jorion's risk budgeting Question: Which is not an essential feature of Jorion's risk budgeting process A. Bottom-up B. Asset allocation C. Manager allocation D. Forward-looking Answer: A Explanation: The three basic steps are: 1. Set the appropriate level of risk, 2. Develop a strategic allocation bases on the risk target, and 3. Create a manager allocation consistent with asset class risk targets.... Question: Which is not an essential feature of Jorion's risk budgeting process A. Bottom-up B. Asset allocation C. Manager allocation D. Forward-looking Answer: A Explanation: The three basic steps are: 1. Set the appropriate level of risk, 2. Develop a strategic allocation bases on the risk target, and 3. Create a manager allocation consistent with asset class risk targets.... Question: Which is not an essential feature of Jorion's risk budgeting process A. Bottom-up B. Asset allocation C. Manager allocation D. Forward-looking Answer: A Explanation: The three basic steps are: 1. Set the appropriate level of risk, 2. Develop a strategic allocation bases on... Question: Which is not an essential feature of Jorion's risk budgeting process A. Bottom-up B. Asset allocation C. Manager allocation D. Forward-looking Answer: A Explanation: The... Replies: 0 Views: 14 11. ### Question 85: 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 ... Replies: 0 Views: 12 12. ### Question 84: 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... Replies: 0 Views: 14 13. ### Question 83: 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 $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... Replies: 0 Views: 21 16. ### Question 80: 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... Replies: 0 Views: 18 17. ### Question 79: 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: 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... Replies: 0 Views: 12 20. ### Question 76: 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... Replies: 0 Views: 12 21. ### Question 75: 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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22. ### Question 74: Distressed securities strategy

Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and extensive analysis D. Legal issues Answer: B Explanation: Distressed securities tend to be less liquid; require specialist expertise with much analytical pre-work involved; tend to be confronted...
Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and extensive analysis D. Legal issues Answer: B Explanation: Distressed securities tend to be less liquid; require specialist expertise with much analytical pre-work involved; tend to be confronted...
Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and extensive analysis D. Legal issues Answer: B Explanation: Distressed securities tend to be less...
Question: Challenges of employing a distressed securities strategy include all of the following except: A. Less liquidity B. Unfavorable image as "vultures" C. Require much expertise and...
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23. ### Question 73: Risk in the CAPM

Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: A. Equity premium B. Beta C. Idiosyncratic risk D. Quantity of risk Answer: C Explanation: Event-driven strategies are company-specific or idiosyncratic. Theoretically, as idiosyncratic...
Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: A. Equity premium B. Beta C. Idiosyncratic risk D. Quantity of risk Answer: C Explanation: Event-driven strategies are company-specific or idiosyncratic. Theoretically, as idiosyncratic...
Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: A. Equity premium B. Beta C. Idiosyncratic risk D. Quantity of risk Answer: C Explanation:...
Question: If the capital asset pricing model (CAPM) were applied against a portfolio that employed an event-driven strategy, which risk in the CAPM would correspond to the manager's focus area: ...
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24. ### Question 72: Short positions

Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting. The long/short equity manager does not hug...
Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting. The long/short equity manager does not hug...
Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation:...
Question: According to Jaeger, short positions (short selling) has three purposes. Which of the following is not one of them? A. Generating positive returns B. Hedging market risk C. Earning...
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25. ### Question 71: Bond decomposition strategy

Question: Which bond decomposition strategy emphasizes, respectively, the following: (i) stage in the management process, (ii) exposure to international markets, and (iii) Yield curve factors A. Lehman Brothers, APT, Solnik's IPA B. Barra, Khoury, APT C. Kuberek's, Solnik's IPA, and Lehman Brothers D. Lehman Brothers, McLaren, and Barra Answer: C Explanation: The Lehman Brothers...
Question: Which bond decomposition strategy emphasizes, respectively, the following: (i) stage in the management process, (ii) exposure to international markets, and (iii) Yield curve factors A. Lehman Brothers, APT, Solnik's IPA B. Barra, Khoury, APT C. Kuberek's, Solnik's IPA, and Lehman Brothers D. Lehman Brothers, McLaren, and Barra Answer: C Explanation: The Lehman Brothers...
Question: Which bond decomposition strategy emphasizes, respectively, the following: (i) stage in the management process, (ii) exposure to international markets, and (iii) Yield curve factors A. Lehman Brothers, APT, Solnik's IPA B. Barra, Khoury, APT C. Kuberek's, Solnik's IPA, and Lehman...
Question: Which bond decomposition strategy emphasizes, respectively, the following: (i) stage in the management process, (ii) exposure to international markets, and (iii) Yield curve factors ...
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26. ### Question 70: Investment strategies

Question: All of the following are investment strategies for managing fixed-income portfolios EXCEPT FOR: A. Barra B. Duration C. Sector D. Maturity distribution Answer: A Explanation: The strategies include active (e.g., forecast rates, forecast spreads), passive (index replication), duration, sector, and maturity distribution. The Barra model is a multifactor model used to...
Question: All of the following are investment strategies for managing fixed-income portfolios EXCEPT FOR: A. Barra B. Duration C. Sector D. Maturity distribution Answer: A Explanation: The strategies include active (e.g., forecast rates, forecast spreads), passive (index replication), duration, sector, and maturity distribution. The Barra model is a multifactor model used to...
Question: All of the following are investment strategies for managing fixed-income portfolios EXCEPT FOR: A. Barra B. Duration C. Sector D. Maturity distribution Answer: A Explanation: The strategies include active (e.g., forecast rates, forecast spreads), passive (index...
Question: All of the following are investment strategies for managing fixed-income portfolios EXCEPT FOR: A. Barra B. Duration C. Sector D. Maturity distribution Answer: A Explanation:...
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27. ### Question 69: Explanatory factors

Question: The Litterman and Scheinkman model contains which three explanatory factors? A. Parallel yield curve shifts, slope changes, and curvature B. Yield curve shift, default risk and market risk C. Default, duration, and market risk D. Duration, convexity, and curvature Answer: A Explanation: The TWO PRIMARY RISKS that explain bond returns are DEFAULT RISK and MARKET RISK. In...
Question: The Litterman and Scheinkman model contains which three explanatory factors? A. Parallel yield curve shifts, slope changes, and curvature B. Yield curve shift, default risk and market risk C. Default, duration, and market risk D. Duration, convexity, and curvature Answer: A Explanation: The TWO PRIMARY RISKS that explain bond returns are DEFAULT RISK and MARKET RISK. In...
Question: The Litterman and Scheinkman model contains which three explanatory factors? A. Parallel yield curve shifts, slope changes, and curvature B. Yield curve shift, default risk and market risk C. Default, duration, and market risk D. Duration, convexity, and curvature Answer: A ...
Question: The Litterman and Scheinkman model contains which three explanatory factors? A. Parallel yield curve shifts, slope changes, and curvature B. Yield curve shift, default risk and...
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28. ### Question 68: Dynamic interest rate models

Question: As dynamic interest rate models, what is the difference between the Cox-Ingersoll-Ross (CIR) model and the Vasicek model? A. Mean reversion B. Short-term rate C. Stochastic process D. Heteroskedastic interest rate volatility Answer: D Explanation: Both models share (A), (B), and (C) in common. They both model rates as reverting toward a mean, given a speed of reversion...
Question: As dynamic interest rate models, what is the difference between the Cox-Ingersoll-Ross (CIR) model and the Vasicek model? A. Mean reversion B. Short-term rate C. Stochastic process D. Heteroskedastic interest rate volatility Answer: D Explanation: Both models share (A), (B), and (C) in common. They both model rates as reverting toward a mean, given a speed of reversion...
Question: As dynamic interest rate models, what is the difference between the Cox-Ingersoll-Ross (CIR) model and the Vasicek model? A. Mean reversion B. Short-term rate C. Stochastic process D. Heteroskedastic interest rate volatility Answer: D Explanation: Both models share (A),...
Question: As dynamic interest rate models, what is the difference between the Cox-Ingersoll-Ross (CIR) model and the Vasicek model? A. Mean reversion B. Short-term rate C. Stochastic process ...
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29. ### Question 67: Indirect method

Question: What is the most acute risk created under the INDIRECT METHOD for estimating a range of zero-coupon rates given yields to maturity? A. Reinvestment risk B. Model risk C. Yield curve risk D. Coupon risk Answer: B Explanation: The indirect methods adjust the market data to fit a specified shape of the yield curve. The suffer therefore from "specification" or model risk...
Question: What is the most acute risk created under the INDIRECT METHOD for estimating a range of zero-coupon rates given yields to maturity? A. Reinvestment risk B. Model risk C. Yield curve risk D. Coupon risk Answer: B Explanation: The indirect methods adjust the market data to fit a specified shape of the yield curve. The suffer therefore from "specification" or model risk...
Question: What is the most acute risk created under the INDIRECT METHOD for estimating a range of zero-coupon rates given yields to maturity? A. Reinvestment risk B. Model risk C. Yield curve risk D. Coupon risk Answer: B Explanation: The indirect methods adjust the market data to...
Question: What is the most acute risk created under the INDIRECT METHOD for estimating a range of zero-coupon rates given yields to maturity? A. Reinvestment risk B. Model risk C. Yield curve...
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30. ### Question 66: Term structure of interest rates

Question: If we want to construct a term structure of interest rates, which is the better method? A. Yield to maturity, because the data is available for all maturities B. Yield to maturity, because it is a recognized standard C. Zero-coupon, because it assumes a single rate at each maturity D. Zero-coupon because is allows for direct estimates Answer: C Explanation: The yield to...
Question: If we want to construct a term structure of interest rates, which is the better method? A. Yield to maturity, because the data is available for all maturities B. Yield to maturity, because it is a recognized standard C. Zero-coupon, because it assumes a single rate at each maturity D. Zero-coupon because is allows for direct estimates Answer: C Explanation: The yield to...
Question: If we want to construct a term structure of interest rates, which is the better method? A. Yield to maturity, because the data is available for all maturities B. Yield to maturity, because it is a recognized standard C. Zero-coupon, because it assumes a single rate at each...
Question: If we want to construct a term structure of interest rates, which is the better method? A. Yield to maturity, because the data is available for all maturities B. Yield to maturity,...
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