Creating a Portfolio Coursera Quiz Answers – Networking Funda

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Creating a Portfolio Week 01 Quiz Answers

Quiz 1: Practice Quiz 1

Q1. An efficient market reflects

• only historical information
• only the information related to events that have already occurred
• all publicly known information related to past events and announced future events
• all information including predictions about future information

Q2. The efficient market hypothesis rests on which of the following assumptions? (Tick all those that apply)

• Information is widely available to all investors almost simultaneously
• Investors react quickly to new information
• Investors correctly interpret all available information
• Events that affect the market occur randomly

Q3. Which of the following activities would be most useful in an efficient market?

• buying and holding a diversified portfolio
• searching for patterns in charts based on stock price movements
• analyzing financial ratios based on accounting data
• buying only securities that have performed well in the recent past

Q4. Based on the semi-strong form of the efficient market theory, an investor reacting immediately to a news flash on television generally

• can make an abnormal profit
• is guaranteed to make a reasonable profit
• is too late to make an exceptional profit
• will suffer a loss

Q5. The anomaly known as post-earnings announcement drift or momentum describes the tendency of stock prices to rise or fall for several __ after unexpectedly good or bad earnings announcements.

• months
• weeks
• days
• hours

Q6. The efficient market hypothesis has some trouble explaining the existence of market anomalies.

• True
• False

Q7. Evidence suggests that growth stocks tend to outperform value stocks.

• True
• False

Quiz 2: Practice Quiz

Q1. One year ago, Matt bought 100 shares of ACE Corp. stock for $5,619 including commission. He is about to sell the ACE stock for $6,528 net of commissions. When he made the purchase the S&P 500 index was at 907; now it is 1070. The beta of ACE stock is 0.98, and the market’s risk-free rate is 4.0%. No dividends were paid. Based on Jensen’s measure, did Matt make a good purchase?

• No
• Yes

Q2. The Witney Growth Fund, a no-load mutual fund, had a net asset value per share of $54.28 one year ago. Its current net asset value is $56.93. During the year it paid out dividends and capital gains of $2.08 per share. It has a beta value of 1.75. Over the same period, the market return was 6.4% and the risk-free rate of return was 3.5%.

Calculate Treynor’s measure for the Witney Growth Fund.

• 2.98%
• 4.36%

Q3. The Witney Growth Fund, a no-load mutual fund, had a net asset value per share of $54.28 one year ago. Its current net asset value is $56.93. During the year it paid out dividends and capital gains of $2.08 per share. It has a beta value of 1.75. Over the same period, the market return was 6.4% and the risk-free rate of return was 3.5%.

Based on Treynor’s measure, how did the fund perform in relation to the overall market?

• Superior
• Inferior

Q4. Treynor’s measure of portfolio performance focuses on

• non-diversifiable risk
• diversifiable risk
• total risk
• the standard
  deviation of the portfolio

Quiz 3

Q1. Ideally, clients would like to invest with a portfolio manager who has

• a moderate personal risk-aversion coefficient
• a low personal risk-aversion coefficient
• the highest Sharpe measure
• the highest record of realized returns
• the lowest record of standard deviations

Q2. If a portfolio manager consistently obtains a high Sharpe measure, the manager’s forecasting ability

• is above average
• is average
• is below average
• does not exist
• cannot be determined based on the Sharpe measure

Q3. Explain the type of risk measured by Jensen’s measure. Also identify the factor in the formula that determines the type of risk that is being measured.

• Nondiversifiable risk, Beta in the CAPM formula
• Total risk, Standard deviation
• Nondiversifiable risk, Beta

Q4. Explain the type of risk measured by Sharpe’s measure. Also identify the factor in the formula that determines the type of risk that is being measured.

• Nondiversifiable risk, Beta in the CAPM formula
• Total risk, Standard deviation
• Nondiversifiable risk, Beta

Q5. Explain the type of risk measured by Treynor’s measure. Also, identify the factor in the formula that determines the type of risk that is being measured.

• Nondiversifiable risk, Beta in the CAPM formula
• Total risk, Standard deviation
• Nondiversifiable risk, Beta

Q6. Which of the following statements about Jensen’s measure are correct?

• Through its use of the capital asset pricing model, Jensen’s measure automatically adjusts for market return
• In general, the higher the Jensen’s measure, the better a portfolio has performed
• Jensen’s measure is referred to as alpha
• A positive Jensen’s measure indicates an investment has underperformed the market on a risk-adjusted basis

Q7. Allison’s portfolio has an expected return of 14% and a beta of 1.37. Brianna’s portfolio has an expected rate of return of 11% and a beta of 1. The risk-free rate is 3% and the expected rate of return on the market is 12%. According to the Jensen’s measure,

• Allison has the better portfolio
• Brianna has the better portfolio
• the portfolios are equally desirable
• the answer depends on Allison and Brianna’s risk tolerance

Q8. Which one of the following statements is correct if a portfolio has a Jensen measure of return of zero?

• The portfolio has a total return of zero percent
• The portfolio earned exactly its expected return on a risk-adjusted basis
• The portfolio outperformed the market on a risk-adjusted basis
• The market provides a better return on a risk-adjusted basis

Q9. Which of the following measures is based on the capital asset pricing model?

• Only Sharpe’s measure
• Only Treynor’s measure
• Only Jensen’s measure
• Both Treynor’s and Jensen’s measures

Q10. A portfolio has a total return of 10.5%, a beta of 0.72, and a standard deviation of 6.3%. The
risk-free rate is 3.8%, and the market return is 12.4%. Jensen’s measure of this portfolio’s performance is

• 0.5%
• 4.3%
• 7.9%
• 9.3%

Creating a Portfolio Week 02 Quiz Answers

Quiz 1: Practice Quiz

Q1. One drawback of investing in mutual funds is the

• annual management fee
• lack of liquidity of fund shares
• amount required for the initial investment
• lack of information on the performance of the fund

Q2. Which of the following are advantages offered by mutual funds? (Tick all that apply)

• professional portfolio management
• dividend reinvestment
• consistent returns in excess of the overall market rate of return
• modest capital outlay for investors

Q3. When an investor buys shares in a mutual fund, he or she becomes a part owner of a portfolio of securities.

• True
• False

Q4. Mutual funds provide a simplified means of diversifying a portfolio.

• True
• False

Q5. A type of mutual fund with particular appeal to investors who accept the efficient market hypothesis is

• index fund
• asset allocation fund
• growth opportunities fund
• emerging markets fund

Quiz 2: Practice Quiz

Q1. The expected return of stock XYZ is 15% and its SD is equal to 25%. If the value of the coefficient of risk aversion A for an investor is 2, calculate the utility from this investment. Assume a quadratic utility function.

• 0.0675
• 0.0875

Quiz 3

Q1. Exchange-traded funds are an alternative to what?

• Call options
• Actively managed equity funds
• Actively managed bond funds
• Index trackers

Q2. Why should one invest in Mutual funds? (Tick all that apply)

• Diversification benefits
• Opportunity costs of keeping up with and monitoring markets
• Transaction costs
• The hope of hitting the next top fund

Q3. In a histogram of mutual funds alphas, a large fraction of alphas bunches up around zero.This is evidence to the fact that the market is largely efficient to the extent that it is not easy to make money.

• True
• False

Q4. What are the uses of style analysis? (Tick all that apply)

• Check if funds follow the philosophy they purport to
• Track changing fund styles across time using rolling estimation periods
• Allows investors to allocate money across styles rather than funds
• Performance evaluation

Q5. Active portfolio management consists of

• market timing
• security analysis
• indexing
• A and B
• none of the above

Q6. A purely passive strategy

• uses only index funds
• uses weights that change in response to market conditions
• uses only risk-free assets
• is best if there is “noise” in realized returns
• is useless if abnormal returns are available

Q7. The covariance of an asset with itself is equal to:

• 0
• the asset’s variance
• the asset’s correlation
• 1

Q8. The one-year return distribution of GEM Inc stock is given below. Calculate the Expected Return

• 0%
• 2.75%
• 7.5%
• 10%

Q9. The one-year return distribution of GEM Inc stock is given below. Calculate the volatility or standard deviation.

• 9.549 %
• 10.256%
• 11.245%
• 12.453 %

Q10. Given below are the risks and returns of the two stocks. Find out the value of A for which Mark will have the same utility for both stocks. Assume that Mark has a Quadratic utility function.

• A = 1.23
• A = 2.34
• A = 3.24
• A = 4.12

Creating a Portfolio Week 03 Quiz Answers

Quiz 1: Practice Quiz

Q1. This type of risk is avoidable through proper diversification.

• portfolio risk
• systematic risk
• unsystematic risk
• total risk

Q2. A statistical measure of the degree to which two variables (e.g., securities’ returns) move together.

• coefficient of variation
• variance
• covariance
• certainty equivalent

Q3. A line that describes the relationship between an individual security’s returns and returns on the market portfolio.

• characteristic line
• security market line
• capital market line
• beta

Quiz 2: Weekly Assessment 3

Q1. To reduce the variance of the return of a portfolio of assets to its minimum, one would prefer to combine assets with correlation coefficients equal to zero.

• False
• True

Q2. Given a portfolio P with an expected return of 12%, formed from two securities A with the expected return of 6% and B with the expected return of 11%. Which of the following is true?

• Security A is being short-sold
• Security B is being short-sold
• Neither security is being short-sold
• The portfolio is not possible since the expected return is greater than individual returns

Q3. If the combination line between stocks X and Y consists of straight lines, then what can you say about the correlation between X and Y?

• Correlation (X,Y) = 1
• Correlation (X,Y) = 0.5
• Correlation (X,Y) = 0
• Correlation (X,Y) = -0.5
• Correlation (X,Y) = -1

Q4. An investor has $8000 to invest in stocks. He buys $ 4000 worth of stock A, Shorts $ 2000 worth of stock B and invests the remaining amount in C so as to balance the amount. What is his portfolio weight for C?

• 0.25
• 0.5
• 0.75
• Cannot be determined

Q5. The Co-variance of two stocks can take on what possible values?

• From -1 to +1
• From 0 to +1
• From -1 to 0
• From -infinity to +infinity

Q6. The optimum portfolio for an investor is one with highest ratio of expected return to standard deviation.

• True
• False

Q7. Which of the following investments is better for an investor with risk aversion coefficient (A )= 4

Investment	Expected Return	Risk
APL	10%	10%
SMG	15%	22%
MTRL	6%	2%

• APL
• SMG
• MTRL

Q8. What is the optimal weight of a risky asset for an investor with a coefficient of risk aversion (A) = 4

Investment	Return	Risk
SMG	15%	22%
Risk-free Asset	4%

• 0.3567
• 0.5681
• 0.6783
• 0.4319

Q9. What is the return and risk of a 50:50 portfolio of SMG and Risk-free asset?

Investment	Return	Risk
SMG	15%	22%
Risk-free	4%

• Return = 9.5% & Risk = 11%
• Return = 11% & Risk = 10%
• Return = 9% & Risk = 11%
• Return = 10% & Risk = 13%

Q10. What is the return and risk of a 50:50 portfolio of SMG and MTRL?

Investment	Return	Risk
SMG	15%	22%
MTRL	6%	2%

• Return = 10.50% and Risk = 11.34%
• Return = 13.50% and Risk = 11.34%
• Return = 10.50% and Risk = 15.34%
• Return = 13.50% and Risk = 15.34%

Creating a Portfolio Week 04 Quiz Answers

Quiz 1: Practice Quiz

Q1. Which of the following should you use to backtest a strategy? (Tick all that apply)

• Automated robot
• Backtesting software
• Manually looking back at past trades

Q2. What should you focus on when backtesting a strategy? (Tick all that apply)

• The performance of your past results
• If the principles of the strategy will work with certain assets
• If the principles of the strategy will work in certain market conditions

Q3. Which of the following could influence your backtesting results? (Tick all that apply)

• The difference in spreads between brokers
• The difference in price feeds between brokers
• Succumbing to emotion in a live environment

Q4. Margin and risk free return on margin are the ideal benchmarks for a long-short strategy.

• True
• False

Q5. When financial institutions follow government regulations pertaining to the industry, the institutions are

• being independent
• in compliance
• being ethical
• in mediation

Q6. When businesses continuously monitor the laws and implement changes to remain in compliance, they
are

• demonstrating negligence
• controlling their risks
• interpreting contracts
• increasing their liabilities

Q7. Ex-ante means before the fact and not after the fact.

• True
• False

Q8. Why do you have to do a backtest? (Tick all the apply)

• You may not be trading in United States and all the strategies are tested in the US market
• Your purpose is different is different from that of the author. You are interested in making money
• Investors might withdraw their money just before your strategy is ready for results
• The market may remain irrational longer than you may remain solvent

Q9. Which of the following problems might one experience while performing backtesting? (Tick all that apply)

• Look ahead bias
• Survival bias
• Stale prices

Quiz 2: Weekly Assessment 4

Q1. An individual who expects that prices for some asset will rise is said to take a

• long position
• short position
• worst case scenario
• the current spot position

Q2. The person who takes a short position usually

• sells an asset that he does not own with the intent of buying it back in the future at a lower price
• buys an asset with the intent of selling it in the future at a higher price for profit
• owns the asset but sells it with the intent of buying it back at a higher price
• sells an asset that he does not own with the intent of buying it back in the future at a higher price

Q3. What is called the amount of cash put up by an investor, which is a fraction of the value the asset?

• Short position
• Long position
• Margin
• Fractional reserve

Q4. Which of the following would be used to stop losses from a short sale? Assume you short sell at the current market price.

• A stop sell order with the stop price set above the current market price
• A stop buy order with the stop price set above the current market price
• A stop buy order with the stop price set below the current market price
• A good-till-canceled market sell order
• A stop sell order with the stop price set below the current market price

Q5. An investor purchased shares with a market price of $50 when the initial margin requirement was 70%. If the price goes to $60, the investor’s rate of return, ignoring dividends and interest, is:

• 29%
• 17%
• 34%
• 20%
• 39%

Q6. An investor purchases 400 shares of stock at a price of $20 per share. The initial margin requirement is 70%. What is the smallest amount that the investor can put up that will satisfy the initial margin requirement?

• $8,000
• $10,000
• $2,400
• $5,600
• $7,200

Q7. The gross contract value on stock of ABC inc is 400,000. The margin required is 15% of the contract value. A person invests 300,000 in this stock. The prices rise by 10 %. How much gain/loss does he make and what is his gain/loss percentage?

• 200,000 and gain % is 66.66%
• 60,000 and gain % is 20%

Q8. The gross contract value on stock of ABC inc is 400,000. The margin required is 15% of the contract value. A person invests 300,000 in this stock. The prices fall by 15 %. How much gain/loss does he make and what is his gain/loss percentage?

• losses all the money he has and the loss % is 100%
• losses 60,000 and loss % is 20%

Q9. How is the margin on a contract determined?

• Volatility of the market
• VAR
• Depends on the benchmark

Q10. Back testing is done to

• Test a model
• Compare model results and actual performance
• Record performance
• None of the above

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