Risk and Return Measures - Sample Questions 11 - 15
- Your client, Geoffrey Harrow, inquires about the appropriateness of a municipal bond for his portfolio. You would tell him that:
- The inclusion of a municipal bond would make little sense for a taxpayer in a high marginal tax bracket.
- Municipal bonds are typically exempt from all manner of income tax.
- A revenue bond's debt is serviced by an income generating facility and bears less risk than a general obligation bond.
- Municipal bonds contain implicit federal backing.
- Calculate the after-tax yield for an investor in the 35% marginal tax bracket. The investment yielded 17.3% with 14% coming from capital appreciation and the remaining 3.3% coming from dividends.
- Between 15% and 17.3%
- Both b & c.
- The difference between beta and alpha is:
- Beta measures systematic risk, whereas alpha measure total risk.
- Beta measures total risk, where as alpha measures excess over market risk.
- Alpha measures the incremental return that a manager adds over the benchmark, while beta measures risk in the market for a portfolio of securities.
- Beta measures market risk, whereas alpha measures excess return.
- Measures of central tendency include all of the following, EXCEPT:
- Time-weighted return.
- Dollar-weighted return.
- Standard deviation.
- Coefficient of variation.
- Semivariance may be defined as:
- A simplified version of standard deviation.
- A measure of skew.
- The average squared deviation below the mean.
- A measure of value at risk.
Investing BasicsRisk-adjusted return is a measurement of risk for an investment or portfolio.
Investing BasicsBuying below the margin of safety minimizes the risk to the investor.
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