PM 1.12 12.04

Q. Analysts who have estimated returns of an asset to be greater than the expected returns generated by the capital asset pricing model should consider the asset to be:

• A. overvalued.
• B. undervalued.
• C. properly valued.

None

• A. Security 1.
• B. Security 2.
• C. Security 3.

Q. The section of the investment policy statement (IPS) that provides information about how policy may be executed, including restrictions and exclusions, is best described as the:

• A. Investment Objectives.
• B. Investment Guidelines.
• C. Statement of Duties and Responsibilities.

None

• A. 8.4%.
• B. 9.0%.
• C. 10.3%.

Q. With respect to the capital asset pricing model, the market risk premium is:

• A. less than the excess market return.
• B. equal to the excess market return.
• C. greater than the excess market return.

A portfolio manager generated a rate of return of 15.5% on a portfolio with beta of 1.2. If the risk-free rate of return is 2.5% and the market return is 11.8%, Jensen’s alpha for the portfolio is closest to:

• A. 1.84%.
• B. 4.34%.
• C. 3.70%.

A security has a beta of 1.30. If the risk-free rate of interest is 3% and the expected return of the market is 8%, based on the capital asset pricing model (CAPM), the expected return of the security is closest to:

• A. 6.5%.
• B. 13.4%.
• C. 9.5%.

The risk-free rate is 5%, and the market risk premium is 8%. If the beta of TRL Corp. is 1.5, based on the capital asset pricing model (CAPM), the expected return of TRL’s stock is closest to:

• A. 17.0%.
• B. 9.5%.
• C. 15.5%.

Q. The capital market line (CML) is the graph of the risk and return of portfolio combinations consisting of the risk-free asset and:

• A. any risky portfolio.
• B. the market portfolio.
• C. the leveraged portfolio.

An investment policy statement’s risk objective states that over a 12-month period, with a probability of 95%, the client’s portfolio must not lose more than 5% of its value. This statement is most likely a(n):

• A. total risk objective.
• B. relative risk objective.
• C. absolute risk objective.