Portfolio Performance Evaluation Quiz

What does the Sharpe ratio measure?

• Total return of a portfolio

• Risk-adjusted return of a portfolio

• Portfolio volatility

• Portfolio's benchmark performance

Jensen's alpha evaluates portfolio performance based on which model?

• Modern Portfolio Theory

• Capital Asset Pricing Model (CAPM)

• Arbitrage Pricing Theory

• Efficient Market Hypothesis

What is the benchmark in portfolio performance evaluation?

• A hypothetical portfolio with no risk

• A standard index or reference portfolio for comparison

• A measure of total portfolio value

• The average portfolio return in the market

Which formula is used to calculate Jensen's alpha?

• Portfolio return - Risk-free rate

• Portfolio return - Benchmark return

• Portfolio return - Expected return (based on CAPM)

• Portfolio standard deviation - Market standard deviation

What is performance attribution analysis?

• Measuring the total value of a portfolio

• Identifying the sources of portfolio performance

• Comparing portfolio returns with risk-free rates

• Estimating future portfolio returns

What does tracking error measure?

• Absolute return of a portfolio

• Volatility of excess returns relative to a benchmark

• The average benchmark return

• The difference in standard deviation between two portfolios

What is a risk-adjusted return?

• Return after considering only benchmark performance

• Return that accounts for the level of risk taken

• Return with no consideration for risk

• Risk-free rate of return

Which of the following is a commonly used benchmark for portfolio performance?

• CPI Index

• Dow Jones Industrial Average

• LIBOR rate

• S&P 500 Index

What does a positive Jensen's alpha indicate?

• The portfolio is underperforming the market

• The portfolio is outperforming its expected return based on risk

• The portfolio has no systematic risk

• The portfolio is performing exactly as expected

Which of the following is a limitation of Sharpe ratio?

• It does not consider the risk-free rate

• It assumes returns are normally distributed

• It does not account for total portfolio risk

• It can only evaluate bond portfolios