Portfolio Managers Cert. Free Demo Test 3

Explanation:

Active portfolio management aims to outperform passive strategies by actively making investment decisions. The need for a theory of active portfolio management arises from the existence of portfolio managers who have consistently generated abnormal returns, persistent anomalies in realized returns suggesting potential outperformance by identifying these anomalies and the presence of “noise” in realized returns making it difficult to statistically reject the possibility of outperformance by some managers. Therefore, all three factors contribute to the necessity of a theory to guide active portfolio management strategies.

Explanation:

The Sharpe Ratio is a measure of the risk-adjusted performance of a financial portfolio. It calculates the ratio of excess return (return above the risk-free rate) to the standard deviation of the portfolio’s returns. The Sharpe Ratio is not ideal for mutually exclusive portfolios because it assumes that investors can adjust their allocation between a risky asset (such as stocks) and a risk-free asset (such as Treasury bills). Mutually exclusive portfolios do not allow for this kind of adjustment, as the investor must choose one portfolio over another.

Explanation:

The Treynor Ratio is a risk-adjusted performance measure that evaluates the excess return of a portfolio per unit of systematic risk, often measured by beta. It is particularly suitable for investors who hold their wealth in well-diversified portfolios. This ratio takes into account the systematic risk, which is the risk associated with the overall market movement.

Jensen’s Alpha and the Sharpe Ratio are also risk-adjusted performance measures, but they consider different risk factors. Jensen’s Alpha considers the security-specific risk (alpha), while the Sharpe Ratio considers the total volatility (standard deviation) of the portfolio’s returns.

Explanation:

The minimum investment threshold for an LLP to invest in PMS is Rs.50 lakhs. This means that an LLP must commit a minimum of Rs.50 lakhs of its funds to participate in a Portfolio Management Service.

Explanation:

Technical analysis integrates these three elements into price charts – points of support and resistance in charts and price trends.

If a stock price is moving closer to an established resistance level, a holder of the stock can benefit by selling the share and booking profits at this stage since the prices are likely to retract once it is close to the resistance level.

Explanation:

Interval funds combine features of both open-ended and closed-ended schemes. These funds offer periodic opportunities for investors to buy or sell units, typically at specified intervals (e.g., quarterly or semi-annually). During these intervals, the fund manager allows investors to enter or exit the fund, resembling an open-ended structure.

However, unlike traditional open-ended funds that allow daily redemptions, interval funds restrict liquidity by limiting the frequency of these redemption opportunities. This feature is more akin to closed-ended funds, which typically have a fixed maturity period and a limited ability for investors to buy or sell shares on the secondary market.

Explanation:

Information Ratio=Rp−Rb / Stdev(Rp−Rb)​

Where:

• Rp is the portfolio return.

• Rb is the benchmark return.

• Stdev(Rp−Rb) is the standard deviation of the excess return.

The information ratio is a measure of the portfolio’s active return per unit of active risk. It provides insights into the portfolio manager’s ability to generate excess returns relative to the benchmark, considering the level of risk taken to achieve those returns. A higher information ratio indicates a more efficient use of active risk and a potentially better performance relative to the benchmark.

Explanation:

Explanation:

Notary charges are a mandatory expense for investors participating in Portfolio Management Services (PMS) because notarization of documents is often required for legal purposes related to the management of investments. This expense ensures the authenticity and legality of various documents involved in the PMS, such as agreements, contracts, and authorizations. While brokerage charges (option c) are also common expenses in investment activities, notary charges specifically pertain to legal documentation and are thus essential for investors engaging in PMS.

Explanation:

For the purpose of determining as to whether an applicant or the intermediary is a ‘fit and proper person’ the Board may take account of any consideration as it deems fit, including but not limited to the following criteria in relation to the applicant or the intermediary, the principal officer and the key management persons by whatever name called –

(a) Integrity, reputation and character;

(b) Absence of convictions and restraint orders;

(c) Competence including financial solvency and net worth;

(d) Absence of categorization as a willful defaulter.