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topic review

  1. Nicole Seaman

    P1.T1.611. Arbitrage pricing theory (APT) (Topic Review)

    Questions: 611.1. Peter the portfolio manages observes the following three well-diversified portfolios (A, B and C) that exist in a single-factor economy: If Peter seeks to conduct an arbitrage with a long/short portfolio with $2.0 million of gross exposure, what is the expected profit...
  2. Nicole Seaman

    P1.T1.610. Risk-adjusted performance measures (Topic Review)

    Questions: 610.1. Over a historical period, the broad market index had an excess return of 7.0% with volatility, σ(M), of 20.0%. Please note "excess return" refers to the return in excess of the riskfree rate. Over the same period, the excess returns of a portfolio were regressed against the...
  3. Nicole Seaman

    P1.T1.609. Capital asset pricing model (CAPM) (Topic Review)

    Questions: 609.1. Peter is evaluating the expected performance of two common stocks, Kintech and Zimit. He has gathered the following information: The riskfree rate is 1.0% The volatility of the market portfolio, σ(M), is 30.0% and its expected return, E(M), is 8.0%; i.e., its expected excess...
  4. Nicole Seaman

    P1.T1.608. Financial disasters & risk management failures: Bankers Trust, JPMorgan, and Enron

    Questions: 608.1. Consider two very different financial disasters the both happened in 1994: Proctor & Gamble's (P&G's) $150+ million loss and a much bigger loss by the city of Orange County. In the case of Orange County, a $1.5 billion investment loss forced the city to file bankruptcy in...
  5. Nicole Seaman

    P1.T1.606. ERM and governance (Topic review)

    Questions: 606.1 In June 2016, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published a draft update of its Enterprise Risk Management (ERM) Integrated Framework. The Framework contains some classic ERM definitions. Below are five definitions from the glossary but...
  6. Nicole Seaman

    P1.T1.605 Other risks (Topic review)

    Questions: 605.1. Risk measurement tends to employ so-called downside risk metrics such as value at risk and expected shortfall (ES). With respect to these measures, each of the requirements below is important; each is either somewhat important or very important. HOWEVER, among the following...
  7. Nicole Seaman

    P1.T1.604. Credit risk (Topic review)

    Questions: 604.1. A $1,000 face value corporate bond with ten years to maturity and a 3.0% annual coupon (i.e., assume annual compounding) has a current price of $918.89. If the market's recovery rate (ie, one minus loss given default) consensus estimate is 20.0% and the risk-free yield is flat...
  8. Nicole Seaman

    P1.T1.602. Basic financial risk types (Topic Review)

    Questions: 602.1. Sallly Smith is developing an economic capital model for her bank. Her economic capital model will determine the target level of equity (i.e., on the balance sheet) at the firm based on a risk appetite articulated by the board of directors and capital at risk across the...
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