# Thread: FRM and general information

1. Q9, answer shud be C.

@Sir:- kindly explain the previous answers for understanding.  Reply With Quote

2. 10. The risk that arises because of volatility of single security return that is uncorrelated with volatility of market portfolio is

A. Systematic Risk
B. Market Risk
C. Credit Risk
D. Volatility Risk
E. Diversifiable Risk  Reply With Quote

3. Answer explanation for Question 6

Sharpe Measure = (Expected Return of Portfolio – Risk Free rate)/ Standard Deviation of portfolio (i.e., 0.20-0.03/0.3=0.566 (approximated to 0.57)

Treynor Measure = (Expected Return of Portfolio – Risk Free rate)/Quantity of Risk

Since Quantity of Risk (Beta value is not given, Treynor Measure cannot be calculated using the given info.)  Reply With Quote

4. Originally Posted by financetutelage 10. The risk that arises because of volatility of single security return that is uncorrelated with volatility of market portfolio is

A. Systematic Risk
B. Market Risk
C. Credit Risk
D. Volatility Risk
E. Diversifiable Risk
I think that the risk of a single security can be diversified away using a basket of securities.
So the answer is E - Diversifiable risk.  Reply With Quote

5. Originally Posted by Sriram Raju I think that the risk of a single security can be diversified away using a basket of securities.
So the answer is E - Diversifiable risk.
It should be A, risk that cant be diversified as its uncorrelated with market.  Reply With Quote

6. Originally Posted by Prabir Bansal @Sir:- kindly explain the previous answers for understanding.
Outliers on right side -> positive outliers -> mean more than normal distributions mean -> positive skewed  Reply With Quote

7. Information Ratio = (Portfolio Expected Return - Benchmark return ) / Standard Deviation of Numerator

Standard Deviation of (Portfolio Expected Return - Benchmark return ) is also known as tracking error
so
IR = ((15-6)/4) = 2.25

So I feel answer is A Originally Posted by financetutelage 8. Calculate the Information Ratio with the following information

Tracking Error = 4%
Expected Return of Market = 15%
Expected Benchmark Return = 6%

A. 2.25
B. 0.0036
C. -2.25
D. -0.0036
E. Cannot be determined with the above information  Reply With Quote

8. Originally Posted by financetutelage 7. Calculate the Risk Premium of an asset with the following info:
Quantity of Risk = 1.5
Expected Return of Portfolio = 20%
Risk Free Rate = 3%
Expected Return of Market = 15%

A. 0.255
B. -0.255
C. 0.18
D. -0.18
E. 0.08
Can anyone help me understand what do we mean by risk premium of asset ? Is it Asset return - rf?  Reply With Quote

9. Originally Posted by financetutelage 6. Calculate Sharpe Measure, Treynor Measure with the following information

Portfolio Expected Return = 20%
Standard Deviation = 30%
Risk Free Rate = 3%

A. Both Sharpe Measure and Treynor Measure cannot be calculated with the above information
B. Sharpe Measure = 0.57 , Treynor Measure cannot be calculated with the above information
C. Sharpe Measure cannot be calculated with the above information, Treynor Measure = 0.57
D. Sharpe Measure = 0.57, Treynor Measure = 0.17
Treynor ratio has beta in denom and Sharpe ratio has SD in denom, hence Treynor cant be calculated and sharpe will be .57  Reply With Quote

10. All of the above ie D Originally Posted by financetutelage 3. Choose answers that apply to Clearinghouse

A. Acts as a counterparty for every trade that takes place in the exchange
B. Members must post a clearing margin to the clearinghouse
C. Clearinghouse can never default
D. All of the above  Reply With Quote

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