FRM UNIT 1 FORMULAS TEST
used to determine a security's performance: ANSWER CAPM Rf + B (Rm - Rf)
A portfolio with a positive alpha has outperformed the market. Jensen's Alpha
E(Rp) - [Rf + B (Rm - Rf) - ANSWER
The beta of the MARKET-ANSWER Capital Market Line Fr + (Θp / Θm) (Rm
- Rf) is used to calculate the expected return of a portfolio on the efficient
frontier.
A portfolio's expected return is calculated using the asset's beta: ANSWER
Capital Allocation Line Rf + (Θp /Θi) (Rm - Rf).
evaluates a portfolio's performance. The better the portfolio, the higher the
number. The share ratio (SP) is equal to (E(Rp) - Rf) / Θp.
calculates a portfolio's excess return for every unit of risk. Its nature is forward-
looking. ANSWER TR, or Treyner Ratio, is equal to (E(Rp) - Rf) / (Bp).
calculates the variation between a portfolio's return and a benchmark's return. A
lower number indicates that the portfolio manager is more reliable, thus you
want that. TE = (Rp) - Rb is the tracking error, according to the answer.
compares the volatility of the portfolio returns to the returns of a benchmark on
an index, like the S&P 500. The information ratio, or IE, is equal to (E(Rp) -
Rb) / (TE).
(x-y)/y = E(Rp)
An asset's expected return (many factors) ANSWER: Multi-Factor Model of
Arbitrage Pricing Theory
B-Factor i1 (i1 - E(i1)) + B-Factor i2 ((i2 - E(i2)) + E(r) = Ri........n
used to determine a security's performance: ANSWER CAPM Rf + B (Rm - Rf)
A portfolio with a positive alpha has outperformed the market. Jensen's Alpha
E(Rp) - [Rf + B (Rm - Rf) - ANSWER
The beta of the MARKET-ANSWER Capital Market Line Fr + (Θp / Θm) (Rm
- Rf) is used to calculate the expected return of a portfolio on the efficient
frontier.
A portfolio's expected return is calculated using the asset's beta: ANSWER
Capital Allocation Line Rf + (Θp /Θi) (Rm - Rf).
evaluates a portfolio's performance. The better the portfolio, the higher the
number. The share ratio (SP) is equal to (E(Rp) - Rf) / Θp.
calculates a portfolio's excess return for every unit of risk. Its nature is forward-
looking. ANSWER TR, or Treyner Ratio, is equal to (E(Rp) - Rf) / (Bp).
calculates the variation between a portfolio's return and a benchmark's return. A
lower number indicates that the portfolio manager is more reliable, thus you
want that. TE = (Rp) - Rb is the tracking error, according to the answer.
compares the volatility of the portfolio returns to the returns of a benchmark on
an index, like the S&P 500. The information ratio, or IE, is equal to (E(Rp) -
Rb) / (TE).
(x-y)/y = E(Rp)
An asset's expected return (many factors) ANSWER: Multi-Factor Model of
Arbitrage Pricing Theory
B-Factor i1 (i1 - E(i1)) + B-Factor i2 ((i2 - E(i2)) + E(r) = Ri........n
