Going Deeper into Business Metrics >> Business Metrics for Data-Driven Companies
1. The “Sharpe Ratio” is:
- A revenue metric divided by a risk metric
- A risk metric divided by a revenue metric
- A risk metric
- A revenue metric
2. Actual CPC, divided by the conversion rate, is the revenue metric:
- Acquisition Cost
- Maximum Cost per Click through
- Quality Score
- Ad Rank
3. Which of the following as NOT a demographic for which one can purchase targeted advertising?
- Member of Vegetarian Interest Group Facebook page
- Future Customer
- Location by zip code
- Level of education
4. The metric referred to as an “organic link” tells us that a visitor to our site came from:
- Clicking on a link to our site in a blog post or article
- Directly typed in the url address of our site
- An unpaid listing of our website that was returned in a search result
- A sponsored link
5. Some step in “search engine optimization” or SEO, are: (check all that apply)
- Increase our “social signal” by increasing our Facebook page “likes” and retweets
- Make sure our content is current, substantive and directly relevant
- Increase links to our website from all possible third-party websites
- Get third-party websites with authoritative reputations and substantive
- opinions to mention us and provide a link to our website
6. The Internal Rate of Return must be used to calculate returns, when:
- There are several methods that can be used, but a single method is preferred
- It is necessary to annualize the rate of return
- It is necessary to compare two different rates of return
- Cash is invested at several different times
7. In finance, it is useful to know both the return, and the volatility of return, of an investment, because:
- Higher volatility leads to higher returns.
- Returns can always be increased through leverage (borrowing money to make a portion of the investment) but this increases volatility, so returns cannot be evaluated in isolation, absent knowledge of their accompanying volatility.
- Volatility of returns is a measure of risk and avoiding risk is a fundamental aim of investing.
- Higher volatility leads to lower returns.
8. Why is relying upon the Life Time Value (LTV) of a customer when determining web ad spending potentially risky?
- Life Time Value is a profitability metric, not a risk metric.
- Life Time Value is a difficult metric to calculate accurately.
- Life Time Value does not take into account the high negative cash flow associated with initial customer acquisition; cash that it may take years to recoup.
- Life Time Value is only useful if the CPC divided by the conversion rate is less than the LTV.
9. In theory, an investor could generate any target return, simply by borrowing money to make a portion of the investment, and investing in an instrument that returns more than the risk-free rate. However, doing this would also:
- Require a more skilled manager
- Increase volatility of returns over the original instrument at the same rate that it increases excess returns.
- Inversely affect the discrete rate of return
- None of the above
10. The “Expense Ratio” is a profitability/efficiency metric – the money spent on operating a passive fund, divided by the total market value of the fund assets.
What expense associated with the fund is NOT included in the money spent operating the fund in calculating the expense ratio?
- Costs incurred in fighting shareholder lawsuits against the fund managers
- The manager’s performance bonus
- Operating expenses associated with marketing the fund
- Brokerage fees the fund pays to buy and sell assets
11. If active fund managers picked their portfolios from an Index “universe” at random, weighted them by relative market capitalization, and held them for a given time interval, what percentage of managers would be expected to out-perform the Index return, before taking their fees into account?
12. Why is it considered undesirable for a fund manager to have a large tracking error?
- Tracking error is a kind of risk metric – it implies wide variation from the appropriate benchmark
- Tracking errors are closely correlated with decreased profit
- Tracking errors are the standard deviation of “excess” returns.
- None of the above
13. What is the most established metric for evaluating Venture Capital and Private Equity Funds?
- Internal Rate of Return (IRR)
- Tracking Error
- Quality Score
- Positive cash flow
14. Why would investors in hedge funds typically want performance that has low correlation to the major equity markets?
- They invest in many different types of assets, including options and derivatives
- They are typically permitted to structure a deal so that they make money when a stock goes down in price
- Investors like to see a strong linear trend in the log value of wealth in a fund.
- Hedge fund investors typically also invest large amounts of capital in major equity markets, and target the highest possible risk-adjusted return on their combined portfolio.
15. On what measures are Mutual Fund Managers primarily judged relative to their benchmark?
- Excess return and tracking error
- Maximum drawdown and tracking error
- Linearity of log return and maximum drawdown
- All of the above