## Get All Weeks Creating a Portfolio Coursera Quiz Answers

## Table of Contents

### 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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