- CFA Exams
- CFA Exam: Level I 2021
- Study Session 3. Quantitative Methods (2)
- Reading 9. Common Probability Distributions
- Subject 9. Shortfall Risk and Roy's Safety-First Criterion

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**CFA Practice Question**

Shortfall risk is defined as ______.

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

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

Correct Answer: A

Shortfall risk is the risk of experiencing a shortfall; that is, falling short of a target or expected value.

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**User Contributed Comments**
2

User |
Comment |
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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) |