I actually do not recall my choice for operational risk, but an employee strike pretty much sounds like on to me. As for the question on the ratio not requiring a benchmark, I chose Jensen's Alpha. For me, it was a matter of using the process of elimination. Clearly, the info ratio is not a choice since it uses a benchmark. And the treynor and sharpe ratios both use the risk free rate as a benchmark. Jensen's Alpha is just a measurement of excess return over expected return which is not a benchmark. On the question of what to do when not enough data is available, I think I chose the same as you.
Nov 2013 FRM Level 1 feedback
- Thread starter Maiyaa
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I actually do not recall my choice for operational risk, but an employee strike pretty much sounds like on to me. As for the question on the ratio not requiring a benchmark, I chose Jensen's Alpha. For me, it was a matter of using the process of elimination. Clearly, the info ratio is not a choice since it uses a benchmark. And the treynor and sharpe ratios both use the risk free rate as a benchmark. Jensen's Alpha is just a measurement of excess return over expected return which is not a benchmark. On the question of what to do when not enough data is available, I think I chose the same as you.
http://www.investopedia.com/terms/j/jensensmeasure.asp
jensen's alpha need the expected market return to calculate. Which is the market index.
yes but the treynor index actually needs the market return to compute the risk premium within the beta formula, and the Alpha index as well
thinking like that you can reason any direction. anyway. i don't know what the correct answer is.
yes I understand
actually sharpe ratio seemed to me the only one that does not need a market return or a benchmark index rather than the treynor ratio, which needs market return within the computation of beta for the portfolio
I am not sure about that however
Okay Pfilk!
We both agree that the question asked which ratio does not require a benchmark in its calculation. Perhaps the question could have been framed better, but it was clear to me that it referring to a ratio that does not require to the excess return over a benchmark in the calculation, not if a benchmark was included in the calculation of any formula component such as beta, standard deviation or tracking error. The expected return for an asset or portfolio is generally regarded as an absolute measure. The Jensen's Alpha is an absolute measure of actual return against the expected return for the same asset/portfolio (not another asset/portfolio) to determine how much of the return was possibly the result of the asset manager's skill (aka Alpha). The Sharp Ratio and Treynor Ratio both measure the return on the portfolio relative to the risk-free rate, which can be considered an implied benchmark although it is not explicitly stated as such. The Information Ratio is a measure of the Portfolio Return over an explicitly stated benchmark return, which is also a relative measure. So, from my perspective, the correct answer is the Jensen's Alpha.
@cdbsmith
well I also do not recall the wording of the question, but alpha needs in my view the risk free and the market return to compute the expected portfolio return
I excluded it a priori, and i was between treynor and sharpe in my choice, but i found sharpe more coherent, since also treynor exploits market return
The help of David Harper would be a relief I believe
well I also do not recall the wording of the question, but alpha needs in my view the risk free and the market return to compute the expected portfolio return
I excluded it a priori, and i was between treynor and sharpe in my choice, but i found sharpe more coherent, since also treynor exploits market return
The help of David Harper would be a relief I believe
monsieuruzairo3
Member
@Pflik
I beg to differ in my opinion of the Sharpe/Treynor question. Treynor ratio for any portfolio definitely requires relationship with the market index. The relationship is captured indeed in the form of beta where you require covariance and variance of the market index. Treynor ratio sigifies return per unit of systematic risk(which comes from the market and hence undiversifiable). In the case of Sharpe ratio, you just need to know the risk free rate and the overall risk of the portfolio captured mathematically as Std. Dev. of the portfolio. This signifies the total risk of the portfolio irrespective of market index. Thus I chose Sharpe ratio(Rp-Rf/Std.dev.)
Please feel free to contradict my statement.
KR
Uzi
I beg to differ in my opinion of the Sharpe/Treynor question. Treynor ratio for any portfolio definitely requires relationship with the market index. The relationship is captured indeed in the form of beta where you require covariance and variance of the market index. Treynor ratio sigifies return per unit of systematic risk(which comes from the market and hence undiversifiable). In the case of Sharpe ratio, you just need to know the risk free rate and the overall risk of the portfolio captured mathematically as Std. Dev. of the portfolio. This signifies the total risk of the portfolio irrespective of market index. Thus I chose Sharpe ratio(Rp-Rf/Std.dev.)
Please feel free to contradict my statement.
KR
Uzi
@Pflik
I beg to differ in my opinion of the Sharpe/Treynor question. Treynor ratio for any portfolio definitely requires relationship with the market index. The relationship is captured indeed in the form of beta where you require covariance and variance of the market index. Treynor ratio sigifies return per unit of systematic risk(which comes from the market and hence undiversifiable). In the case of Sharpe ratio, you just need to know the risk free rate and the overall risk of the portfolio captured mathematically as Std. Dev. of the portfolio. This signifies the total risk of the portfolio irrespective of market index. Thus I chose Sharpe ratio(Rp-Rf/Std.dev.)
Please feel free to contradict my statement.
KR
Uzi
I did some research on this and believe I may have received definitive information. Based on this article, the Sharpe Ratio should be the correct answer as it does not require any reference to a market index for its calculation. In contrast, both the Jensen's Alpha and Treynor Ratio require a market index for it to be calculated. The link to the article is here:
http://faculty-research.edhec.com/s...ils.LectureFichiergw?ID_FICHIER=1328885972210
I honestly do not recall the specific wording of the question, but if it is simply asking which ratio does not require a benchmark, then I would argue that it is poorly worded as there is too much ambiguity in the question. However, if it specifically refers to a market index, then the Sharpe Ratio should be the correct answer according to the article. I'd be interested in learning what GARP will do with this question. I wouldn't be surprised if they ultimately decide to omit it.
The article is pretty good and should be something we can refer to in the future.
Hi all, PFA an excel sheet with 88 questions of the FRM Part-1 on 16 Nov 2013 based on memory. [ In CFA we cant discuss actual exam questions but it seeems GARP is silent about it ] . Encouraged by the discussions am sharing my questions. What could be the expected score to pass ? My guess is 60 %. I dont agree with 70% + as the pass rate is 50% and given the nature of the exam & time constraint, expecting 50% of the test takers to score more than 70% does not appear to be probable. What are ur views?
thks krenate. i would be happy to know those questions and solutions . it would help us and other users of this forum for future guidance. as i had
mentioned that the answers may not be correct. they are the ones i have marked. what do u think should be the pass score?
thks. lets hpoe the final result is good. what do u think should be the cut off score ?
ok.
thks. what do u think should be the cutoff score..or is it that i am too optimistic when i consider it as 60%
I do not know, truly speaking I do worry more about my performance than yours... In my opinion you have cleared it....the passing score is based on the performance of others....if other were extremely well prepared it will be 70 % then...if not, probably, a little bit less.....
thks. u seems to be quite optimistic abt me. hope we all clear. good luck..lets wait and hope for a happy new year
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