Section 5: Portfolio Management - Exam Questions With Verified Answers.
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Course
Portfolio Management
Institution
Portfolio Management
Section 5: Portfolio Management - Exam
Questions With Verified Answers.
Standard deviation is a measure of _____________________ while Beta is a measure
of______________________. - answera) market risk and unsystematic risk
b) systematic and idiosyncratic risk
c) total risk and systematic risk...
Section 5: Portfolio Management - Exam
Questions With Verified Answers.
Standard deviation is a measure of _____________________ while Beta is a measure
of______________________. - answer✔a) market risk and unsystematic risk
b) systematic and idiosyncratic risk
c) total risk and systematic risk
d) systematic and market risk
Standard deviation is a measure of total risk (both systematic and unsystematic risk). However,
beta is a measure of volatility capturing market or systematic risk. See select readings on
"investment risk" from the Investment Answer Book.
All of the following statements regarding standard deviation are true except: - answer✔a)
standard deviation measures total risk; it measures the uncertainty in an investment portfolio; it
measures the dispersion of returns around a historical average or expected outcome
b) standard deviation relies on the concept of normal distribution where the mean, mode, and
median are all the same; graphically standard deviation can be illustrated using a bell-shaped
curve where there is little or no skewness and/or kurtosis
c) standard deviation has been criticized because it treats upside and downside variation, or risk,
equally; an investment could have a very low standard deviation (i.e., be considered low risk) but
have lost money over time
d) standard deviations for individual securities are always higher than standard deviations of
portfolios because of the diversification effect; standard deviations are higher for shorter time
periods as compared to longer time periods
See select readings from the Investment Answer Book - pages 4-8.
The measurement of risk that quantifies a portfolio's maximum possible risk expected over a
certain period of time is called: - answer✔a) standard deviation
b) semi-standard deviation
c) value at risk
d) negative skewness
See select readings on "investment risk" (covering Value at Risk - VaR) in the Investment
Answer Book - pages 24-27.
Which of the following is most accurate in describing Value at Risk (VaR)? - answer✔a) value
at risk is considered by many a more useful way to measure risk because it does not assume
normal distribution like standard deviation and other risk metrics
b) value at risk describes a potential loss in terms of amount (or percent), time period, and
confidence level
c) value at risk cannot be well modeled through Monte Carlo Simulation (MSC) because delta-
normal models like VaR are incompatible with MCS
d) value at risk is useful to advisors and investors because it estimates worst possible outcomes
not revealed by other risk metrics
See select readings on "investment risk" (covering Value at Risk - VaR) in the Investment
Answer Book - pages 24-37.
Which of the following is NOT a criticism of mean variance optimized (MVO) portfolios as
developed through Modern Portfolio Theory (MPT): - answer✔a) critics of MVO argue that one
cannot reliably find the expected return and standard deviation of each asset class along with the
correlation between each pair of assets needed in order to determine the optimal asset mix
b) inputs used to develop MVO portfolios are based on historical data which can be incomplete
and lead to faulty portfolio design
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