Risk and Return Measures - Sample Questions 11 - 15

  1. Your client, Geoffrey Harrow, inquires about the appropriateness of a municipal bond for his portfolio. You would tell him that:
    1. The inclusion of a municipal bond would make little sense for a taxpayer in a high marginal tax bracket.
    2. Municipal bonds are typically exempt from all manner of income tax.
    3. A revenue bond's debt is serviced by an income generating facility and bears less risk than a general obligation bond.
    4. Municipal bonds contain implicit federal backing.
  2. 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.
    1. 11.2%
    2. 16.15%
    3. Between 15% and 17.3%
    4. Both b & c.
  3. The difference between beta and alpha is:
    1. Beta measures systematic risk, whereas alpha measure total risk.
    2. Beta measures total risk, where as alpha measures excess over market risk.
    3. Alpha measures the incremental return that a manager adds over the benchmark, while beta measures risk in the market for a portfolio of securities.
    4. Beta measures market risk, whereas alpha measures excess return.
  4. Measures of central tendency include all of the following, EXCEPT:
    1. Time-weighted return.
    2. Dollar-weighted return.
    3. Standard deviation.
    4. Coefficient of variation.
    5. R2
  5. Semivariance may be defined as:
    1. A simplified version of standard deviation.
    2. A measure of skew.
    3. The average squared deviation below the mean.
    4. A measure of value at risk.
Sample Questions 16 - 20


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