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Thread: FRM and general information

  1. #81
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    Q9, answer shud be C.

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

  2. #82
    FRM Expert financetutelage's Avatar
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    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

  3. #83
    FRM Expert financetutelage's Avatar
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    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.)

    Answer: B

  4. #84
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    Quote Originally Posted by financetutelage View Post
    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.

  5. #85
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    Quote Originally Posted by Sriram Raju View Post
    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.

  6. #86
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    Quote Originally Posted by Prabir Bansal View Post
    Q9, answer shud be C.

    @Sir:- kindly explain the previous answers for understanding.
    Outliers on right side -> positive outliers -> mean more than normal distributions mean -> positive skewed

  7. #87
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    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

    Quote Originally Posted by financetutelage View Post
    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

  8. #88
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    Quote Originally Posted by financetutelage View Post
    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?

  9. #89
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    Quote Originally Posted by financetutelage View Post
    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
    Answer I feel is B

  10. #90
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    All of the above ie D

    Quote Originally Posted by financetutelage View Post
    3. Choose answers that apply to Clearinghouse


    Possible Answers:

    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

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