Risk Management
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Course Introduction
Risk Management explores the identification, assessment, and mitigation of risks faced by organizations in various sectors. This course covers key principles and practices of risk analysis, including the evaluation of potential threats, the development of risk response strategies, and the implementation of controls to minimize losses. Students learn about quantitative and qualitative risk assessment techniques, regulatory and ethical considerations, as well as the use of risk management frameworks. Real-world case studies and practical exercises help students develop the skills necessary to make informed decisions under uncertainty and create resilient organizational processes.
Recommended Textbook
Modern Portfolio Theory and Investment Analysis 9th Edition by Edwin J. Elton
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5 Chapters
231 Verified Questions
231 Flashcards
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Page 2
Chapter 1: Introduction
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12 Flashcards
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Sample Questions
Q1) Which of the following security's value is contingent on the performance of an underlying security?
A) Treasury Bill
B) Option
C) Corporate Bond
D) Equity
Answer: B
Q2) Collateralized debt obligations (CBO)are backed by one of the following:
A) Pools of mortgages
B) Low Investment-grade corporate bonds
C) Pools of commercial or personal loans
Answer: B
Q3) Stocks are traded only in the listing exchange.For example,the fact that IBM is listed in NYSE implies that it can only be traded in NYSE
A)True
B)False
Answer: False
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Chapter 2: Portfolio Analysis
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) Discuss whether the following statement is true or false: A multi-index model will predict returns better than a single-index model.
A)True
B)False
Answer: False
Q2) Explain how the equity premium work in estimating expected returns.
Answer: Equity premium is the amount of return that an investor demands for holding risky securities as opposed to the riskless securities. Since securities are priced based on their relative risk,it is believed that if one can estimate one asset category with relative accuracy,pricing other assets relative to that category is an efficient way to forecast expected returns.
The expected riskfree return,like the one-year Treasury bill return,is a quantity that can be observed in the market.Thus the treasury bills or the riskfree returns are a useful way to benchmark for building expected returns for other categories.
The equity premium is added to the current riskfree security rate to form a forward-looking expected return for the equity portfolio.This same principle can be applied to all other asset classes as well.
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Page 4
Chapter 3: Models of Equilibrium in the Capital Markets
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Sample Questions
Q1) Which statement of the following statements is true?
A) All portfolios that plot on the Security Market Line are efficient.
B) All portfolios that plot on the Security Market Line are inefficient.
C) Both efficient and inefficient portfolios plot on the Capital Market Line.
D) Only individual securities plot on the Capital Market Line.
Answer: A
Q2) Consider the following data for securities A and B: \(\bar { R } _ { A } = 20 \%\) ; \(\bar { R } _ { B } = 10 \%\) ; \(\beta _ { \mathrm { A } } = 1.5\) ; \(\beta _ { B } = 0.5\) .
Assume that the zero-beta CAPM holds and that all securities are in equilibrium.Plot the Security Market Line.Be sure to label all points.
Answer: To develop a security market line where the zero-beta CAPM holds and all securities are in equilibrium,all securities contained in \(M\) (the market portfolio)must have an expected return given by \(\bar { R } _ { j } = \bar { R } _ { z } + \beta _ { j } \left( \bar { R } _ { M } - \bar { R } _ { z } \right)\) .All portfolios composed solely of risky assets have returns from the above mentioned equation.The line \(\bar { R } _ { Z } B M A\) is the line that defines the equation.This equation holds only for risky assets and for portfolios of risky assets. 11ea83f1_e7fa_51a2_b5a5_2d865c14e825_TB6527_00
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Chapter 4: Security Analysis and Portfolio Theory
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Sample Questions
Q1) Which of the following investment strategies is inconsistent with a "contrarian" philosophy?
A) buying low, selling high
B) buying when odd-lot buying is lower than normal
C) buying when mutual fund cash positions are low
D) buying when most investment advisory services are bearish
E) selling after a market crash or decline
Q2) Assume that the annual interest rate on 2-period loans is 10% and the annual interest rate on 3-period loans is 12%.
a. What is the forward rate on loans made in period 2 and repaid in period 3?
b. What is the present value of a security with a cash flow of $300 at the end of period 1 and a cash flow of $400 at the end of period 3?
c. What is the future value (at the end of period 3) of the security in part b?
Q3) Discuss whether the following statement is true or false:
The use of a dividend-discount model to value common stocks is inconsistent with strong-form efficiency but is consistent with weak-form efficiency.
A)True
B)False
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Chapter 5: Evaluating the Investment Process
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Sample Questions
Q1) While money managers,on average,have not done as well as the market,larger money managers have generally done much better than smaller money managers.
A)True
B)False
Q2) Explain the steps involved in evaluating the valuation process of an output.
Q3) Several studies have looked at the effect of analyst recommendations on stock prices.These studies have concluded that the recommendations are not useful to investors interested in making excess returns.
A)True
B)False
Q4) List the methods that are employed to determine the "I's" in the literature of performance measurement,where the "I's" represent influences that systematically affect returns.
Q5) Explain how Betas of Index funds result below one under a passive strategy.
Q6) Explain how a fund manager may improve the portfolio's performance through market timing.Also discuss the limitation of using such strategies.
Q7) Past fund performance is correlated with future fund performance,such as,poor fund performance predicts future poor performance.
Page 7
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