Investment Theory and Portfolio Development - Review Questions 7 - 12

  1. Rocco's portfolio returned 9.32% last year when the market returned 11.24%. The risk-free rate was 6.01% and the β for his portfolio as 1.09. From this scenario, we would conclude that:
    1. Rocco's portfolio was overvalued.
    2. Rocco's portfolio was undervalued and added alpha.
    3. There are insufficient data to draw a conclusion.
    4. The forecast return and the required return on Rocco's portfolio are equal.
  2. All of the following terms are associated with technical analysis, EXCEPT:
    1. Advance/Decline Line.
    2. Quick Ratio.
    3. Head and shoulders.
    4. Candlestick charting.
  3. Examples of expansionary monetary policy include all of the following, except:
    1. lowering reserve requirements.
    2. FOMC purchase of government securities.
    3. Increased government spending.
    4. Decrease in the discount rate.
  4. The creation of the investment policy statement forms the basis for:
    1. Strategic asset allocation.
    2. Tactical asset allocation.
    3. Rebalancing.
    4. All of the foregoing.
  5. The Sharpe and Treynor ratios have all of the following in common, except:
    1. They measure risk-adjusted performance.
    2. They use total risk in the denominator.
    3. They may be used to evaluate individual securities as well as portfolios.
    4. The greater the ratios, the greater degree to which the performance is worth the risk.
  6. All of the following statements accurately describe the attributes of a benchmark, except:
    1. Unambiguous.
    2. Efficient.
    3. Measurable.
    4. Investable.
Review Questions 13 - 18
Related Articles
  1. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  2. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  3. Active Trading

    10 Steps To Building A Winning Trading Plan

    It's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
  4. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  5. Credit & Loans

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  6. Chart Advisor

    Is This The Beginning Of A Downtrend In Home Builders?

    Falling lumber prices and weakness on the charts of home builders suggest that the next leg of the trend could be downward.
  7. Professionals

    'Man Up': 3 Tips for Working with Male Clients

    Male clients aren't always financially literate. Here's how advisors can meet their needs.
  8. Investing Basics

    Calculating Risk And Reward

    Simply put, investing requires a degree of risk, and the bigger that risk, the higher the gain should be.
  9. Economics

    How Does Reinsurance Work?

    Reinsurance is a practice in which insurers transfer portions of portfolios to other parties in order to reduce their exposure to claims.
  10. Active Trading Fundamentals

    5 Must Watch Films and Documentaries for Day Traders

    Discover these five must-watch films and documentaries for day traders reviewed with the takeaway lessons that inspire, motivate and entertain.
  1. Equity Risk Premium

    The excess return that investing in the stock market provides ...
  2. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  3. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  4. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  5. Gross Exposure

    The absolute level of a fund's investments.
  6. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Why are mutual funds subject to market risk?

    Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict ... Read Full Answer >>
  3. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  4. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
  5. Do financial advisors work only in banks?

    While the majority of financial advisors work for financial institutions such as banks, a large proportion of them are self-employed ... Read Full Answer >>
  6. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center