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Investment analysis and portfolio
management. Exam Questions With Verified
Answers.
How many estimates are needed for the Markowitz Model? - answer✔2n+(n^2-n)/2 estimates
What is the residual? - answer✔Firm-specific surprise in the security return
How many estimates are needed for the Single-Index model? - answer✔3n+2 estimates
What is the security characteristic line? - answer✔The regression estimates with intercept alpha
and slope beta
What is alpha? - answer✔The difference between the fair and actually expected rates of return on
a stock
What is the information ratio? - answer✔It measures the extra return we incur when we over- or
underweight securities relative to the passive market index
What is a tracking portfolio? - answer✔It is a portfolio designed to match the systematic
(market-sensitive) component of the portfolios return
What is alpha transport? - answer✔The process of separating the search for alpha from the
choice of market exposure
What does homogeneous expectations mean? - answer✔That all investors analyse securities in
the same way and share the same economic view of the world
What is the market portfolio? - answer✔A portfolio consisting of all traded assets
What is the market price of risk? - answer✔The extra return that investors demand to bear
portfolio risk
What is the liquidity of an asset? - answer✔The ease and speed with which it can be sold at fair
market value
, ©BRAINBARTER 2024/2025
What is a factor portfolio? - answer✔A well-diversified portfolio constructed to have a beta of 1
on one of the factors and a beta of zero on any other factor
What is the efficient market hypothesis? - answer✔It is the notion that stocks already reflects all
available information
What is the weak-form hypothesis? - answer✔It asserts that stock prices already reflect all
information that ca be derived by examining market trading data
What is the semistrong-form hypothesis? - answer✔It states that all publicly available
information regarding the prospects of a fir must be reflected already in the stock price
What is the strong-form hypothesis? - answer✔It states that stock prices reflect all information
relevant to the firm, including private information
What is technical analysis? - answer✔The search for recurrent and predictable patterns in stock
prices
What is fundamental analysis? - answer✔Examination of a firm's accounting statements and
other financial and economic value of a company's stock.
What is a passive investment strategy? - answer✔It aims only at establishing a well-diversified
portfolio without attempting to find under- or overvalued stocks (buy-and-hold strategy)
What is an event study? - answer✔A technique of empirical financial research that enables an
observer to assess the impact of a particular event on a firm's stock price
What is abnormal return? - answer✔The difference between the stock's actual return and the
benchmark
What is the cumulative abnormal return? - answer✔The sum of all abnormal returns over the
time period of interest
What is the magnitude issue regarding EMH? - answer✔Only managers with large portfolios can
earn enough trading profits to make the exploitation of minor mispricing with the effort
What is the selection bias issue regarding EMH? - answer✔Investment strategies that work are
not being reported to the public
What is the lucky event issue regarding EMH? - answer✔We cannot exclude the fact that
successful investment schemes might just be luck rather than skill
What is the momentum effect? - answer✔Good or bad recent performance of particular stocks
continue over time
Investment analysis and portfolio
management. Exam Questions With Verified
Answers.
How many estimates are needed for the Markowitz Model? - answer✔2n+(n^2-n)/2 estimates
What is the residual? - answer✔Firm-specific surprise in the security return
How many estimates are needed for the Single-Index model? - answer✔3n+2 estimates
What is the security characteristic line? - answer✔The regression estimates with intercept alpha
and slope beta
What is alpha? - answer✔The difference between the fair and actually expected rates of return on
a stock
What is the information ratio? - answer✔It measures the extra return we incur when we over- or
underweight securities relative to the passive market index
What is a tracking portfolio? - answer✔It is a portfolio designed to match the systematic
(market-sensitive) component of the portfolios return
What is alpha transport? - answer✔The process of separating the search for alpha from the
choice of market exposure
What does homogeneous expectations mean? - answer✔That all investors analyse securities in
the same way and share the same economic view of the world
What is the market portfolio? - answer✔A portfolio consisting of all traded assets
What is the market price of risk? - answer✔The extra return that investors demand to bear
portfolio risk
What is the liquidity of an asset? - answer✔The ease and speed with which it can be sold at fair
market value
, ©BRAINBARTER 2024/2025
What is a factor portfolio? - answer✔A well-diversified portfolio constructed to have a beta of 1
on one of the factors and a beta of zero on any other factor
What is the efficient market hypothesis? - answer✔It is the notion that stocks already reflects all
available information
What is the weak-form hypothesis? - answer✔It asserts that stock prices already reflect all
information that ca be derived by examining market trading data
What is the semistrong-form hypothesis? - answer✔It states that all publicly available
information regarding the prospects of a fir must be reflected already in the stock price
What is the strong-form hypothesis? - answer✔It states that stock prices reflect all information
relevant to the firm, including private information
What is technical analysis? - answer✔The search for recurrent and predictable patterns in stock
prices
What is fundamental analysis? - answer✔Examination of a firm's accounting statements and
other financial and economic value of a company's stock.
What is a passive investment strategy? - answer✔It aims only at establishing a well-diversified
portfolio without attempting to find under- or overvalued stocks (buy-and-hold strategy)
What is an event study? - answer✔A technique of empirical financial research that enables an
observer to assess the impact of a particular event on a firm's stock price
What is abnormal return? - answer✔The difference between the stock's actual return and the
benchmark
What is the cumulative abnormal return? - answer✔The sum of all abnormal returns over the
time period of interest
What is the magnitude issue regarding EMH? - answer✔Only managers with large portfolios can
earn enough trading profits to make the exploitation of minor mispricing with the effort
What is the selection bias issue regarding EMH? - answer✔Investment strategies that work are
not being reported to the public
What is the lucky event issue regarding EMH? - answer✔We cannot exclude the fact that
successful investment schemes might just be luck rather than skill
What is the momentum effect? - answer✔Good or bad recent performance of particular stocks
continue over time
