PM 1.11 Test

An investor with $10,000 decides to borrow an additional $5,000 at the risk-free rate and invest all the available funds in the market portfolio. This investor’s portfolio beta is closest to:

• A. 0.5.
• B. 1.0.
• C. 1.5.

Q. The intercept of the best fit line formed by plotting the excess returns of a manager’s portfolio on the excess returns of the market is best described as Jensen’s:

• A. beta.
• B. ratio.
• C. alpha.

None

• A. Security 1.
• B. Security 2.
• C. Security 3.

Q. Which of the following is the correct sequence of events for risk governance and management that focuses on the entire enterprise? Establishing:

• A. risk tolerance, then risk budgeting, and then risk exposures.
• B. risk exposures, then risk tolerance, and then risk budgeting.
• C. risk budgeting, then risk exposures, and then risk tolerance.

None

• A. Investment 1.
• B. Investment 2.
• C. Investment 3.

Q. With respect to capital market theory, the optimal risky portfolio:

• A. is the market portfolio.
• B. has the highest expected return.
• C. has the lowest expected variance.

Q. With respect to the portfolio management process, the asset allocation is determined in the:

• A. planning step.
• B. feedback step.
• C. execution step.

An analyst observes that stock markets usually demonstrate return distributions concentrated to the right with a higher frequency of negative deviation from the mean. This feature is most likely known as:

• A. positive skewness.
• B. negative skewness.
• C. kurtosis.

Q. Investment managers incentivized or accountable for short-term performance by current and prospective clients is a potentially rational explanation for which of the following?

• A. Home bias
• B. Bubbles
• C. Value stocks outperforming growth stocks

Q. An investor purchased 100 shares of a stock for $34.50 per share at the beginning of the quarter. If the investor sold all of the shares for $30.50 per share after receiving a $51.55 dividend payment at the end of the quarter, the holding period return is closest to:

• A. −13.0%.
• B. −11.6%.
• C. −10.1%.