Q1. Which of the following is most reflective of absolute performance measurement?

A)   A benchmark that provides an estimate of future risk-adjusted returns.

B)   An objective stated in return over the risk-free rate.

C)   An estimate of the probability that college will be unaffordable.

Q2. Which of the following statements is most correct?

A)   Most lifestyle objectives are best framed in terms of relative performance objectives.

B)   If an investor achieves absolute performance objectives, they will also be assured of meeting relative performance objectives.

C)   An investor can achieve relative performance objectives, and still fail to achieve absolute performance objectives.

Q3. The behavioral finance view assumes that objectives are best defined in absolute terms because:

A)   relative returns cannot be used for lifestyle objectives.

B)   it can be difficult for investors to interpret the connection between statistical objectives, and the probability that they will achieve their goals.

C)   absolute returns are ordinarily easier to achieve because they are readily understood.

Q4. Suppose that we have plotted a set of hypothetical investment outcomes relating to various asset allocations, in terms of expected final account value and probability of failing to reach an objective. The investor’s objective is then to select the:

A)   option that maximizes the anticipated return and upside potential.

B)   optimal tradeoff between risk of failure and the reward of final account value.

C)   option that minimizes the overall risk of failure.

Q1. Which of the following is most reflective of absolute performance measurement?

A)   A benchmark that provides an estimate of future risk-adjusted returns.

B)   An objective stated in return over the risk-free rate.

C)   An estimate of the probability that college will be unaffordable.

Correct answer is C)

A goal of accumulating funds that will be sufficient to pay for college expenses is an absolute objective. All of the others are relative objectives.

Q2. Which of the following statements is most correct?

A)   Most lifestyle objectives are best framed in terms of relative performance objectives.

B)   If an investor achieves absolute performance objectives, they will also be assured of meeting relative performance objectives.

C)   An investor can achieve relative performance objectives, and still fail to achieve absolute performance objectives.

Correct answer is C)

An investor can achieve relative performance objectives, and still fail to achieve absolute performance objectives. For example, a benchmark may have a negative return during a given period. Exceeding the benchmark is no assurance that absolute performance objectives will be realized. Conversely, failing to match a relative objective does not insure that an absolute objective will not be met.

Q3. The behavioral finance view assumes that objectives are best defined in absolute terms because:

A)   relative returns cannot be used for lifestyle objectives.

B)   it can be difficult for investors to interpret the connection between statistical objectives, and the probability that they will achieve their goals.

C)   absolute returns are ordinarily easier to achieve because they are readily understood.

Correct answer is B)

The behavioral finance view assumes that objectives are best defined in absolute terms because it can be difficult for investors to interpret the connection between statistical objectives, and the probability that they will achieve their goals.

Q4. Suppose that we have plotted a set of hypothetical investment outcomes relating to various asset allocations, in terms of expected final account value and probability of failing to reach an objective. The investor’s objective is then to select the:

A)   option that maximizes the anticipated return and upside potential.

B)   optimal tradeoff between risk of failure and the reward of final account value.

C)   option that minimizes the overall risk of failure.

Correct answer is B)

The investor’s objective is to select the optimal tradeoff between risk of failure and the reward of final account value.

Thank you!