Q:

What two components are used to calculate risk-adjusted return?
I. Risk-free rate of return
II. Correlation coefficient
III. Conversion ratio
IV. Standard deviation

A) I and III
B) I and IV
C) II and III
D) III and IV
A:
The correct answer is b.
Standard deviation and the risk-free rate of return are used to calculate or measure return based on the level of risk taken using what is called the Sharpe Ratio. Standard deviation is a measure of a portfolio’s total risk. The risk-free rate of return is usually the current rate of short-term Treasury bills. Correlation coefficient is a measure of how performance between different investments correlates. The conversion ratio is the number of shares of stock received when a convertible bond or preferred stock is converted by the holder.

MORE FAQS

  1. Which of the following statements is (are) true with respect to the calculation of returns of composites ...

  2. Which of the following statements is (are) true with respect to the coefficient of determination ...

  3. Which of the following signatures are required on a client’s new account form ...

  4. Which statements about common shareholder rights are FALSE? I. A shareholder may exchange shares to ...

  5. Which of the following are tools that are employed by the Federal Reserve in its efforts to control the money supply?

  6. Which of the following statements is (are) true with respect to the factors that a manager must take ...

  7. Which of the following are not types of open-end management investment companies ...

  8. Which of the following statements is (are) true with respect to setting the proper constraints in managing ...

  9. Under the Telephone Consumer Act of 1991, a telemarketer must provide which of the following to a called ...

  10. Which TWO statements are TRUE about writing covered calls? I ...

  11. Under the Uniform Securities Act, which of the following are defined as securities ...

  12. If a sales representative moves from one broker-dealer to another ...

  13. Federal covered securities are subject to which of the following requirements ...

  14. A margin account has a long market value of $12,000, a debit balance of -$6,000 ...

  15. What is a good Sharpe ratio?

  16. Are dividends the best way to make money for retirement?

  17. How many attempts at each CFA exam is a candidate permitted?

  18. What's the average salary of a financial advisor?

  19. Why is Hong Kong considered a tax haven?

RELATED FAQS

  1. Which of the following statements is (are) true with respect to the calculation ...

    The correct answer is: a) (I) is incorrect because results that cover a period of less than a year must "not" be annualized. ...
  2. Which of the following statements is (are) true with respect to the coefficient ...

    The correct answer is: c) (I) is incorrect because coefficient of determination will always be positive, whereas correlation ...
  3. Which of the following signatures are required on a client’s new account form ... ...

    The correct answer is B. While local practices of a broker-dealer might require the client to sign the form, even when opening ...
  4. Which statements about common shareholder rights are FALSE? I. A shareholder may ...

    The correct answer is a. I should be the the other way around: convertible bond holders can exchange their bonds for shares. ...
  5. Which of the following are tools that are employed by the Federal Reserve in its ...

    I. Moral suasionII. Changing the discount rateIII. Changing the reserve requirementIV. Changing the prime interest rate A. ...
  6. Which of the following statements is (are) true with respect to the factors that ...

    The correct answer is: d) (I) is incorrect because if interest rates are expected to rise, banks will generally "increase" ...
RELATED TERMS
  1. Risk-Adjusted Return

    A concept that refines an investment's return by measuring how ...
  2. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, ...
  3. Risk-Free Return

    The theoretical rate of return attributed to an investment with ...
  4. Capital Allocation Line - CAL

    A line created in a graph of all possible combinations of risky ...
  5. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. ...
  6. Risk-Free Asset

    An asset which has a certain future return. Treasuries (especially ...
Hot Definitions
  1. Quadruple Witching

    The expiration date of various stock index futures, stock index options, stock options and single stock futures. All stock ...
  2. Co-pay

    A type of insurance policy where the insured pays a specified amount of out-of-pocket expenses for health-care services such ...
  3. Protectionism

    Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local ...
  4. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  5. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  6. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
Trading Center