FIN 420 FINAL EXAM DERIVATIVES
PRICING HEDGING STRATEGIES AND
FINANCIAL RISK MANAGEMENT
ASSESSMENT GUIDE
●● What is a Holding Period Return?
Answer: The return on an asset or portfolio over the whole period during
which it was held
●● What are the most common methods to consider average returns?
Answer: Dollar and time weighted returns
●● What are money-weighted returns used to show?
Answer: They're used to show how a single, standalone asset performed
over time
●● What is used to find a money weighted return?
Answer: The Internal Rate of Return
●● What are time-weighted returns used for?
Answer: They're used to compare a portfolio to a benchmark
,●● What does a time-weighted return do?
Answer: This type geometrically links returns to smooth out the
otherwise distorting effect of cash inflows and outflows (such as buying
new shares)
●● How is a time-weighted return found?
Answer: Found by calculating the geometric average
●● What geometrically links independent holding period returns?
Answer: time-weighted returns
●● What is risk-adjusted performance based on?
Answer: The risk-reward tradeoff
●● What is the Risk-Reward tradeoff?
Answer: To realize greater rewards, one must accept a greater risk
●● What does the Sharpe Ratio do?
Answer: Scales the investment's excess returns to total risk
●● What is total risk measured by?
Answer: standard deviation
, ●● What is an excess return?
Answer: The spread of return over the risk-free rate
●● What is the Sharpe Ratio used for?
Answer: Used to compare undiversified assets
●● How is the Sharpe ratio number expressed?
Answer: Expressed as excess return per unit of total risk
●● What does the M2 measure find?
Answer: Finds the spread between the sharpe ratios of a financial asset
and the broader market
●● What is the Treynor Ratio?
Answer: Uses a combination of the Sharpe ratio and beta to measure the
excess returns per total unit of risk when combining diversified assets
●● What is beta?
Answer: Systematic risk exposure, the risk of the market itself
●● When is the Treynor Ratio used?
Answer: Used when combining a diversified investment with a pool of
diversified investments
PRICING HEDGING STRATEGIES AND
FINANCIAL RISK MANAGEMENT
ASSESSMENT GUIDE
●● What is a Holding Period Return?
Answer: The return on an asset or portfolio over the whole period during
which it was held
●● What are the most common methods to consider average returns?
Answer: Dollar and time weighted returns
●● What are money-weighted returns used to show?
Answer: They're used to show how a single, standalone asset performed
over time
●● What is used to find a money weighted return?
Answer: The Internal Rate of Return
●● What are time-weighted returns used for?
Answer: They're used to compare a portfolio to a benchmark
,●● What does a time-weighted return do?
Answer: This type geometrically links returns to smooth out the
otherwise distorting effect of cash inflows and outflows (such as buying
new shares)
●● How is a time-weighted return found?
Answer: Found by calculating the geometric average
●● What geometrically links independent holding period returns?
Answer: time-weighted returns
●● What is risk-adjusted performance based on?
Answer: The risk-reward tradeoff
●● What is the Risk-Reward tradeoff?
Answer: To realize greater rewards, one must accept a greater risk
●● What does the Sharpe Ratio do?
Answer: Scales the investment's excess returns to total risk
●● What is total risk measured by?
Answer: standard deviation
, ●● What is an excess return?
Answer: The spread of return over the risk-free rate
●● What is the Sharpe Ratio used for?
Answer: Used to compare undiversified assets
●● How is the Sharpe ratio number expressed?
Answer: Expressed as excess return per unit of total risk
●● What does the M2 measure find?
Answer: Finds the spread between the sharpe ratios of a financial asset
and the broader market
●● What is the Treynor Ratio?
Answer: Uses a combination of the Sharpe ratio and beta to measure the
excess returns per total unit of risk when combining diversified assets
●● What is beta?
Answer: Systematic risk exposure, the risk of the market itself
●● When is the Treynor Ratio used?
Answer: Used when combining a diversified investment with a pool of
diversified investments
