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Basic Question 0 of 14

Shortfall risk is defined as ______.

A. the probability that a portfolio value will fall below some minimum acceptable level over some time period
B. the probability that the mean return on a portfolio will fall below some minimum acceptable level over some time period
C. the probability that a portfolio value will always be below some minimum acceptable level over some time period
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User Contributed Comments 2

User Comment
fahad It is the opposite of Z formula in the numerator and also replace mean with minum acceptable level of return denoted as RL.
bobert It isn't the opposite of the z-formula.

z-value = (X-mean) / std dev.

SFRatio = (Rp-RL) / std dev.

Both formulas look to get an answer that is relative to standard deviation units. Therefore on a normal distribution, you use the SFRatio as a z-value to determine the F(X)
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I used your notes and passed ... highly recommended!
Lauren

Lauren

Learning Outcome Statements

calculate and interpret alternative price multiples and dividend yield;

calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;

explain and justify the use of earnings yield (E/P);

describe fundamental factors that influence alternative price multiples and dividend yield;

calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals;

calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;

evaluate a stock by the method of comparables and explain the importance of fundamentals in using the method of comparables;

calculate and interpret the P/E-to-growth ratio (PEG) and explain its use in relative valuation;

calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model;

explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and describe limitations of each definition;

calculate and interpret EV multiples and evaluate the use of EV/EBITDA;

CFA® 2025 Level II Curriculum, Volume 4, Module 23.