FRM Unit 1 Formulas Questions with Complete Solutions 100% Verified| Latest Update Graded A+

FRM Unit 1 Formulas Questions with Complete Solutions 100% Verified| Latest
Update Graded A+


measures the excess return of a portfolio for each unit of risk. It is forward looking in nature
Treyner Ratio
TR = (E(Rp) - Rf) / (Bp)


Measures the difference between a portfolio return and that of a benchmark. You want a lower
number because that states that the portfolio manager is more consistent Tracking Error
TE = (Rp) - Rb)


Measures the portfolio returns above the returns of a benchmark on a index such as the S&P
500 to the volatility of those returns Information Ratio
IE = (E(Rp) - Rb) / (TE)


E(Rp) = (x-y)/y



Expected Return of a Asset (multiple factors) Arbitrage Pricing Theory (Multi-Factor Model)
Ri = E(r) + B-Factor i1 (i1 - E(i1)) + B-Factor i2 ((i2 - E(i2))........n



Expected Return of a Asset (single factor) Arbitrage Pricing Theory (Single-Factor Model)
Ri = E(r) + B-Factor i1 ( Factor 1)



What are the shortfalls of the APT model? The APT does not factor in any relevant risk
factors



Fama-French Three-Factor Model The FF three-factor model puts three factors forward: