8008 Exam Dumps | Which of the following attributes of an investment are affected by changes in leverage:

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PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition
PRMIA.8008.v2021-08-28.q125
Question 34

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Question 34/125

Which of the following attributes of an investment are affected by changes in leverage:

A. Information ratio

B. risk and return

C. Sharpe ratio

D. All of the above

Correct Answer: B

Explanation
Explantion:
Changing leverage does not affect the Sharpe ratio or the Information ratio. However, leverage magnifies both risk and return. Therefore Choice 'b' is the correct answer.Recall that Sharpe ratio is the ratio of the excess returns (over the risk free rate) of an investment to its standard deviation, and the information ratio is the ratio of the 'alpha' returns to the standard deviation of such returns.

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