AAFM Investment Analysis and Portfolio Management 3

Question 1

The information ratio evaluates a portfolio manager's skill by dividing active return by which metric?

Accepted Answer

Tracking error

Answer

Standard deviation

Answer

Beta

Answer

Sharpe ratio

Question 2

Which concept explains that professional fund managers rarely outperform the market on a risk-adjusted basis consistently?

Accepted Answer

Efficient Market Hypothesis

Answer

Random walk hypothesis

Answer

Behavioral finance theory

Answer

Mean reversion

Question 3

Convexity adjusts a bond's price estimate for which limitation of duration?

Accepted Answer

Non-linear price-yield relationship

Answer

Credit risk underestimation

Answer

Liquidity premium

Answer

Currency risk

Question 4

Which performance attribution method breaks excess return into allocation, selection, and interaction effects?

Accepted Answer

Brinson-Hood-Beebower model

Answer

CAPM decomposition

Answer

Treynor-Black model

Answer

Fama-French decomposition

Question 5

Dollar-cost averaging reduces which specific investment risk over time?

Accepted Answer

Timing risk

Answer

Credit risk

Answer

Inflation risk

Answer

Liquidity risk

Question 6

Which index construction method weights each constituent by its float-adjusted market capitalization?

Accepted Answer

Market-cap weighting

Answer

Equal weighting

Answer

Price weighting

Answer

Fundamental weighting