- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 5. Portfolio Mathematics
- Subject 3. Shortfall Risk and Roy's Safety-First Criterion
CFA Practice Question
A portfolio manager is concerned about not keeping up with the rate of inflation. His portfolio has a mean return of 9% with a variance of 144. If inflation is expected to be 3.5%, what is the shortfall risk (i.e., the portfolio return being less than 3.5%)?
A. 32.3%
B. 67.7%
C. 50%
Explanation: Based on the z transformation, z = (3.5 - 9)/12 = -0.4583. From standard normal tables, Prob(z <= -0.4583) = 0.3228, or 32.3%.
User Contributed Comments 5
User | Comment |
---|---|
danlan | It is less than 50% but greater than 0% so it can only be A. |
aakash1108 | Variance = 144 and therefore St.Dev = 12.... |
Shaan23 | your good at taking square roots. |
Cfrey | you're good at spelling. |
rojaslav | Nice |