Again out of schweser… I think question 2 and 3 are a bit dodgy… but if everyone gets it right and it’s just me thats got it wrong then it’s probably just my dire understanding. Have fun! 1.) An analyst is considering various risk measures to apply to a bond portfolio. He requires a measure that will use all the data so no information will be lost. Given this requirement, as he considers using the semivariance and/or value at risk, he would reject: A) the semivariance but not value at risk. B) value at risk but not the semivariance. C) both value at risk and the semivariance. 2.) When the sponsor is choosing a fixed-income manager, with respect to the fees the manager charges, the evidence shows: A) that fixed-income managers with the highest fees have the lowest information ratios. B) that there is no relationship between fees and information ratios. C) that fixed-income managers with the highest fees have the highest information ratios. 3.) Gil Johnson and Susan Craig are U.S.-based investors discussing some potential investments in foreign bonds (a British bond, Canadian bond, European bond and Japanese bond). Johnson and Craig consider not only which bonds to invest in, but also whether or not to hedge the investment. Johnson says that the one strategy they will probably not employ is the proxy hedge. His reasoning is that the four currencies are not all expected to either increase or decrease against the dollar. “A proxy hedge only makes sense when we have high correlations for the currency movements,” Johnson says. Craig agrees that they should not employ a proxy hedge, but her reasoning is that there are probably no cost benefits in doing so. With respect to Johnson and Craig’s reasons for not considering a proxy hedge: A) Johnson is wrong, but Craig is correct. B) Johnson is correct, but Craig is wrong. C) Johnson and Craig are both correct.
C A B
CAB here too…
C C B
B - semi var by definition excludes half of the returns B - fee’s are related to invetment style (passive=>active) more active shld be higher return to offset fee’s - so end of day jsut comparing performance. B - is by definition I see I am going against some of the big guns so would love to understand 1&2
My thinking for number 1 VAR tell is a measure of downside risk, but doesn’t tell you the magnitude of potential loss. So it tell you you might loss a MIN of 1M in any given day, but doesn’t tell you how much more than that you lose (the amount of area in the left tail past the VAR level is not explored) Semi-variance only measures left tail risk and doesn’t give you a full picture of the volatility of the position. If he used them both at the same time he would get a better picture, but that isn’t how I read the question.
A - reject semivar because excludes a portion of distribution; VaR includes entire distro B - there is no relationship btwn fees and IR. C - by definition
mwvt9 Wrote: ------------------------------------------------------- > My thinking for number 1 > > VAR tell is a measure of downside risk, but > doesn’t tell you the magnitude of potential loss. > So it tell you you might loss a MIN of 1M in any > given day, but doesn’t tell you how much more than > that you lose (the amount of area in the left tail > past the VAR level is not explored) > > Semi-variance only measures left tail risk and > doesn’t give you a full picture of the volatility > of the position. > > If he used them both at the same time he would get > a better picture, but that isn’t how I read the > question. Doesn’t VaR include the entire distro? SemiVar excludes a portion but VaR includes all and tell us what the probability of a loss potential is and in order to do so, it takes ALL observation into account. SemiVar excludes ones less than a min threshold.
For probability purposes VAR includes the whole distribution, but it doesn’t give full information because it doesn’t tell you the magnitude of losses below the significance level tested. I could be wrong here (I have been getting killed on q’s lately)…just listing what I was thinking.
Gotcha but VaR still uses all the information. I think the question is about which risk measure includes all the distribution in its calculation not about which one provides a better description of the distribution.
agree with recycler… gonna change my first answer to A…
A A C My thinking with the third one is that given the currencies being hedged, there is unlikely to be a cost benefit to a proxy hedge
- C 2. B 3. B For number 1, mwvt’s explanation was dead on. For number 2 and 3, I didn’t get to this reading in Schweser yet, so I’m kind of guessing, but for number 2 it seems most likely that the curriculum would emphasize the research that suggests active (and expensive) management isn’t really worth it. For number 3 I have no idea what the F&*# a “cost benefit” is, so I just picked B because the whole question is wrong. Bad Schweser wording again, I’m sure. By the way, it’s been four hours, don’t you think the OP should put the Schweser answer up by now?
A C(?) B
so whats the answer? my guess would be: C (or B) B B fairly sure on 2/3 - am curious about 1 though
I think I’ll change the anwer on number 2 to b, so my answers are ABC
Ferrari321 Wrote: ------------------------------------------------------- > so whats the answer? my guess would be: > > C (or B) > B > B > > fairly sure on 2/3 - am curious about 1 though Will post answer 2mo… or even later 2nite…
1.) An analyst is considering various risk measures to apply to a bond portfolio. He requires a measure that will use all the data so no information will be lost. Given this requirement, as he considers using the semivariance and/or value at risk, he would reject: A) the semivariance but not value at risk. B) value at risk but not the semivariance. C) both value at risk and the semivariance. The correct answer is A) the semivariance but not value at risk. The measures to compute value at risk use all the data. The semivariance only uses the portion of data below a given value. 2.) When the sponsor is choosing a fixed-income manager, with respect to the fees the manager charges, the evidence shows: A) that fixed-income managers with the highest fees have the lowest information ratios. B) that there is no relationship between fees and information ratios. C) that fixed-income managers with the highest fees have the highest information ratios. The correct answer is A) that fixed-income managers with the highest fees have the lowest information ratios. Just like the equity markets, a company should avoid hiring managers with higher fees. The evidence shows that fixed-income managers with the highest fees have the lowest information ratios. 3.) Gil Johnson and Susan Craig are U.S.-based investors discussing some potential investments in foreign bonds (a British bond, Canadian bond, European bond and Japanese bond). Johnson and Craig consider not only which bonds to invest in, but also whether or not to hedge the investment. Johnson says that the one strategy they will probably not employ is the proxy hedge. His reasoning is that the four currencies are not all expected to either increase or decrease against the dollar. “A proxy hedge only makes sense when we have high correlations for the currency movements,” Johnson says. Craig agrees that they should not employ a proxy hedge, but her reasoning is that there are probably no cost benefits in doing so. With respect to Johnson and Craig’s reasons for not considering a proxy hedge: A) Johnson is wrong, but Craig is correct. B) Johnson is correct, but Craig is wrong. C) Johnson and Craig are both correct. The correct answer is A) Johnson is wrong, but Craig is correct. There are two reasons a manager may want to use a proxy hedge strategy: i) The manager may expect one currency to underperform relative to another currency, ii) It may be more costly, or not possible, to establish a hedge in the currency in which the investment has been made. Johnson’s reason is really an argument for using a proxy hedge. If the currencies are moving in opposite directions, then there may be an opportunity to capture extra returns from those movements. Craig is probably correct in that the four currencies they are considering are major world currencies. It is unlikely there would be a significant cost benefit derived from a proxy hedge as opposed to a standard hedge.
good questions
Thanks for posting these questions.