1. What is correct about standard deviation?
I. Standard deviation is the measure of risk commonly applied to portfolios and to individual securities within that portfolio.
II. Standard deviation is the square of variance.
III. The past performance or historical returns of securities is used to determine a range of possible future outcomes. The more volatile the price of a security has been in the past, the larger the range of possible future outcomes.
IV. The standard deviation, expressed as a percentage, gives the investor an indication of the risk associated with an individual security or a portfolio.
V. The greater the standard deviation, the greater the risk.
a) I, II, III
b) III, IV, V
c) I, III, IV, V
d) I, II, III, IV, V
2. What is correct about a structured product?
I. A structured product is a passive investment vehicle financially engineered to provide a specific risk and return characteristic.
II. The value of a structured product tracks the return of a reference security known as an underlying asset. Underlying assets can consist of a single security, a basket of securities, foreign currencies, commodities or an index.
III. Examples of underlying assets include mortgage loans, credit card receivables, car loans, equity indexes or home equity loans.
IV. Once assembled, a structured product is designed to have higher risk than its constituent underlying asset, yet provide lower risk adjusted returns than conventional investments. Investors buy a share of the total pool of underlying assets.
a) I, II
b) III, IV
c) I, II, III
d) I, II, III, IV
1. c) I, III, IV, V
Statement II, should read “the standard deviation is the square root of variance”.
Chapter 15: Introduction to the Portfolio Approach
2. c) I, II, III
Chapter 17: Evolution of Managed and Structured Products
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