Risk and Return Measures - Answers 1 - 20

  1. "D". This is the definition of a dollar-weighted return. a defines duration, b defines arithmetic return, c is incorrect.
  2. "D". None. a through c describe a dollar weighted return.
  3. "E". The calculation takes the bond's annual coupon in dollars and divides it by the market price.
  4. "D". The tax-equivalent yield is the rate at which the investor is indifferent between it and the tax-exempt yield. The second part of the definition describes the calculation methodology.
  5. "D". The answer to the question has two parts. One is the definition, the other is the calculation which assumes a 3.5% inflation rate.
  6. "C". The description defines when the two rates would be equal.
  7. "E". The answer has two parts: the correct holding period return and the formula for obtaining it.
  8. "E". This two part answer describes the Treynor and Sharpe ratios, respectively.
  9. "C". The answer drives home the point that the investor's marginal tax bracket is a critical ingredient in the TEY calculation.
  10. "B". The question requires calculation of the current yield and the observation that the bond is trading at a premium to ascertain that the yield to maturity will be less than the current yield. One does not need to resort to the IRR function on a financial calculator to answer this question.
  11. "A". All of the other talking points are incorrect.
  12. "D". The two part answer contains the exact response as well as the range into which it falls.
  13. "D". These are textbook definitions of the two concepts.
  14. "E". R2 measures the degree of variability of a dependent variable that is explained by changes in the independent variable, not degree of central tendency.
  15. "C". This is the definition of semivariance.
  16. "A". R2 is a performance attribution tool.
  17. "B". Beta measures market risk and is a subset of total risk which is measured by standard deviation.
  18. "A". This is an application of standard deviation of returns for the area under the bell curve. One takes the return and adds and subtracts the standard deviation percentage from it to obtain the range of dispersion.
  19. "B". Skewness gauges the extent of skew, or the degree of asymmetry of return distributions.
  20. "D". This question asks the candidate to apply the concept of R2.
Answers 21 - 31


Related Articles
  1. Fundamental Analysis

    How To Measure Your Portfolio’s Performance

    The first tool for assessing portfolio performance while considering risk was the Treynor measure.
  2. Investing

    Measure Your Portfolio's Performance

    Learn three ratios that will help you evaluate your investment returns.
  3. Bonds & Fixed Income

    Understanding The Sharpe Ratio

    This simple ratio will tell you how much that extra return is really worth.
  4. Investing Basics

    More Ways to Evaluate Portfolio Performance

    The Jensen measure is another tool investors use to include risk when measuring portfolio performance.
  5. Bonds & Fixed Income

    Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.
  6. Investing

    Standard Deviation

    Learn about how standard deviation is applied to the annual rate of return of an investment to measure the its volatility.
  7. Forex Education

    Trading With Gaussian Models Of Statistics

    The entire study of statistics originated from Gauss and allowed us to understand markets, prices and probabilities, among other applications.
  8. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  9. Professionals

    Common Interview Questions for Financial Analysts

    Learn more about the career of financial analyst, along with specific potential interview questions and answers for this type of position.
  10. Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
RELATED TERMS
  1. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  2. Variability

    The extent to which data points in a statistical distribution ...
  3. Series E Bond

    Accrual bonds that were issued at 75% of the face amount. Interest ...
  4. Timeliness

    A proprietary rating system used to rate stocks while taking ...
  5. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, ...
  6. SEC Form D

    A filing with the Securities and Exchange Commission (SEC) required ...
RELATED FAQS
  1. The real rate of return is the amount of interest earned over and above the:

    a. discount rate. b. tax rate. c. inflation rate. d. risk-free rate of return. Answer: C Since the real rate of return measures ... Read Answer >>
  2. A brokerage customer has $10,000 in securities and a credit balance of $4,000 ... ...

    The correct answer is d The market value of the person's equity is equal to the market value of the securities plus the credit ... Read Answer >>
  3. What two components are used to calculate risk-adjusted return? I ...

    The correct answer is b. Standard deviation and the risk-free rate of return are used to calculate or measure return based ... Read Answer >>
  4. Stock A has a standard deviation of 16% and a beta of 1.1 ...

    The correct answer is: C) Step 1: Calculate the expected return on Stock A E(R) = (.10)(12%) + (.25)(15%) + (.40)(8%) + (.25)(-9%) ... Read Answer >>
  5. Which of the following is not needed to calculate the net present value of an investment?

    A. The amount of interest expected to be generated each year B. The time horizon – how long the investment is expected to ... Read Answer >>
  6. Which of the following is not a reason why a company might issue a stock dividend ...

    The correct answer is d. All of these are reasons for a company to issue a stock dividend, remember that this differs from ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center