Section 5: Portfolio Management - Exam Questions With Verified Answers.

Section 5: Portfolio Management - Exam Questions With Verified Answers. Standard deviation is a measure of _____________________ while Beta is a measure of______________________. - answera) market risk and unsystematic risk b) systematic and idiosyncratic risk c) total risk and systematic risk d) systematic and market risk Standard deviation is a measure of total risk (both systematic and unsystematic risk). However, beta is a measure of volatility capturing market or systematic risk. See select readings on "investment risk" from the Investment Answer Book. All of the following statements regarding standard deviation are true except: - answera) standard deviation measures total risk; it measures the uncertainty in an investment portfolio; it measures the dispersion of returns around a historical average or expected outcome b) standard deviation relies on the concept of normal distribution where the mean, mode, and median are all the same; graphically standard deviation can be illustrated using a bell-shaped curve where there is little or no skewness and/or kurtosis c) standard deviation has been criticized because it treats upside and downside variation, or risk, equally; an investment could have a very low standard deviation (i.e., be considered low risk) but have lost money over time d) standard deviations for individual securities are always higher than standard deviations of portfolios because of the diversification effect; standard deviations are higher for shorter time periods as compared to longer time periods ©BRAINBARTER 2024/2025 See select readings from the Investment Answer Book - pages 4-8. The measurement of risk that quantifies a portfolio's maximum possible risk expected over a certain period of time is called: - answera) standard deviation b) semi-standard deviation c) value at risk d) negative skewness See select readings on "investment risk" (covering Value at Risk - VaR) in the Investment Answer Book - pages 24-27. Which of the following is most accurate in describing Value at Risk (VaR)? - answera) value at risk is considered by many a more useful way to measure risk because it does not assume normal distribution like standard deviation and other risk metrics b) value at risk describes a potential loss in terms of amount (or percent), time period, and confidence level c) value at risk cannot be well modeled through Monte Carlo Simulation (MSC) because delta- normal models like VaR are incompatible with MCS d) value at risk is useful to advisors and investors because it estimates worst possible outcomes not revealed by other risk metrics See select readings on "investment risk" (covering Value at Risk - VaR) in the Investment Answer Book - pages 24-37. Which of the following is NOT a criticism of mean variance optimized (MVO) portfolios as developed through Modern Portfolio Theory (MPT): - answera) critics of MVO argue that one cannot reliably find the expected return and standard deviation of each asset class along with the correlation between each pair of assets needed in order to determine the optimal asset mix b) inputs used to develop MVO portfolios are based on historical data which can be incomplete and lead to faulty portfolio design ©BRAINBARTER 2024/2025 c) MVO relies on the stability of the capital markets including the positive relationship between risk and return, time premium, rational investors, etc. d) opponents site the inability of MVO portfolios to navigate significant market drawdowns in an acceptable manner See select readings on "managing portfolio risk" in the Investment Answer Book - page 4. Match the following investment strategy descriptions with their titles: I. strategy that provide exposure to an underlying asset(s) or allocation while guaranteeing principle at some level II. strategy that actively adjusts asset allocation based on what can be numerous factors including valuation, momentum, risk metrics, etc. III. strategy that implements an asset allocation with target asset weightings and seeks to maintain these allocations IV. strategy that buys and sells assets in an attempt to predict market prices through fundamental, technical, or macro-factor analysis - answera) I. tactical asset allocation, II. market timing, III. strategic asset allocation, IV. dynamic asset allocation b) I. tactical asset allocation, II. strategic asset allocation, III. dynamic asset allocation, IV. market timing c) I. dynamic asset allocation, II. market timing, III. strategic asset allocation, IV. tactical asset allocation