Question 1

The Black-Litterman model is geared toward ____________ while the Treynor-Black model is geared toward ____________.

Accepted Answer

A)  security analysis; security analysis 
B)  asset allocation; asset allocation 
C)  security analysis; asset allocation 
D)  asset allocation; security analysis 
E)  None of the options are correct. 
A)  security analysis; security analysis 
B)  asset allocation; asset allocation 
C)  security analysis; asset allocation 
D)  asset allocation; security analysis 
E)  None of the options are correct.

Question 2

One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's

Accepted Answer

A)  Sharpe ratio. 
B)  information ratio. 
C)  alpha. 
D)  Treynor measure. 
E)  None of the options are correct. 
A)  Sharpe ratio. 
B)  information ratio. 
C)  alpha. 
D)  Treynor measure. 
E)  None of the options are correct.

Question 3

If you begin with a ______ and obtain additional data from an experiment, you can form a ______.

Accepted Answer

A)  posterior distribution; prior distribution 
B)  prior distribution; posterior distribution 
C)  tight posterior; Bayesian analysis 
D)  tight prior; Bayesian analysis 
E)  None of the options are correct. 
A)  posterior distribution; prior distribution 
B)  prior distribution; posterior distribution 
C)  tight posterior; Bayesian analysis 
D)  tight prior; Bayesian analysis 
E)  None of the options are correct.

Question 4

Kane, Marcus, and Trippi (1999) show that the annualized fee that investors should be willing to pay for active management, over and above the fee charged by a passive index fund, does not depend onI) the investor's coefficient of risk aversion.II) the value of the at-the-money call option on the market portfolio.III) the value of the out-of-the-money call option on the market portfolio.IV) the precision of the security analyst.V) the distribution of the squared information ratio in the universe of securities.

Accepted Answer

A)  I, II, and IV 
B)  II, III, and V 
C)  II and III 
D)  I, IV, and V 
E)  II, IV, and V 
A)  I, II, and IV 
B)  II, III, and V 
C)  II and III 
D)  I, IV, and V 
E)  II, IV, and V

Question 5

Consider these two investment strategies: $\begin{array}{cc}
&  \text {  Strategy1\%} &\text { Strategy2\%} \
 \text { Expected return } &6&9\
 \text { Standard deviation } &0&4\
 \text {Highest return  } &6&15\
 \text {  Lowest return } &6&6\
\end{array}$

Strategy __________ is the dominant strategy because __________.

Accepted Answer

A)  1; it is riskless 
B)  1; it has the highest reward/risk ratio 
C)  2; its return is greater than or equal to the return of Strategy 1 
D)  2; it has the highest reward/risk ratio 
E)  Both strategies are equally preferred. 
A)  1; it is riskless 
B)  1; it has the highest reward/risk ratio 
C)  2; its return is greater than or equal to the return of Strategy 1 
D)  2; it has the highest reward/risk ratio 
E)  Both strategies are equally preferred.

Question 6

The beta of an active portfolio is 1.17. The standard deviation of the returns on the market index is 23%. The nonsystematic variance of the active portfolio is 0.06. The standard deviation of the returns on the active portfolio is

Accepted Answer

A)  32.46%. 
B)  30.62%. 
C)  29.60%. 
D)  27.17%. 
E)  36.39%. 
A)  32.46%. 
B)  30.62%. 
C)  29.60%. 
D)  27.17%. 
E)  36.39%.

Question 7

According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of __________ to __________.

Accepted Answer

A)  the degree of mispricing; the nonsystematic risk of the security 
B)  the degree of mispricing; the systematic risk of the security 
C)  the market sensitivity of the security; the nonsystematic risk of the security 
D)  the nonsystematic risk of the security; the systematic risk of the security 
E)  the total return on the security; the nonsystematic risk of the security 
A)  the degree of mispricing; the nonsystematic risk of the security 
B)  the degree of mispricing; the systematic risk of the security 
C)  the market sensitivity of the security; the nonsystematic risk of the security 
D)  the nonsystematic risk of the security; the systematic risk of the security 
E)  the total return on the security; the nonsystematic risk of the security

Question 8

Kane, Marcus, and Trippi (1999) show that the annualized fee that investors should be willing to pay for active management, over and above the fee charged by a passive index fund, depends onI) the investor's coefficient of risk aversion.II) the value of the at-the-money call option on the market portfolio.III) the value of the out-of-the-money call option on the market portfolio.IV) the precision of the security analyst.V) the distribution of the squared information ratio in the universe of securities.

Accepted Answer

A)  I, II, and IV 
B)  I, III, and V 
C)  II, IV, and V 
D)  I, IV, and V 
E)  II, III, and V 
A)  I, II, and IV 
B)  I, III, and V 
C)  II, IV, and V 
D)  I, IV, and V 
E)  II, III, and V

Question 9

Even low-quality forecasts have proven to be valuable because R-squares of only ____________ in regressions of analysts' forecasts can be used to substantially improve portfolio performance.

Accepted Answer

A)  0.656 
B)  0.452 
C)  0.258 
D)  0.153 
E)  0.001 
A)  0.656 
B)  0.452 
C)  0.258 
D)  0.153 
E)  0.001

Question 10

Active portfolio management consists of

Accepted Answer

A)  market timing. 
B)  security analysis. 
C)  indexing. 
D)  market timing and/or security analysis. 
E)  None of the options are correct. 
A)  market timing. 
B)  security analysis. 
C)  indexing. 
D)  market timing and/or security analysis. 
E)  None of the options are correct.

Question 11

The beta of an active portfolio is 1.45. The standard deviation of the returns on the market index is 22%. The nonsystematic variance of the active portfolio is 0.03. The standard deviation of the returns on the active portfolio is

Accepted Answer

A)  36.30%. 
B)  5.84%. 
C)  19.60%. 
D)  24.17%. 
E)  26.0%. 
A)  36.30%. 
B)  5.84%. 
C)  19.60%. 
D)  24.17%. 
E)  26.0%.

Question 12

Perfect timing ability is equivalent to having __________ on the market portfolio.

Accepted Answer

A)  a call option 
B)  a futures contract 
C)  a put option 
D)  a commodities contract 
A)  a call option 
B)  a futures contract 
C)  a put option 
D)  a commodities contract

The Black-Litterman model is geared toward while the Treynor-Black model is geared toward .

One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's

If you begin with a and obtain additional data from an experiment, you can form a .

Consider these two investment strategies: Strategy1\% Strategy2\% Expected return 6 9 Standard deviation 0 4 Highest return 6 15 Lowest return 6 6 Strategy is the dominant strategy because .

The beta of an active portfolio is 1.17. The standard deviation of the returns on the market index is 23%. The nonsystematic variance of the active portfolio is 0.06. The standard deviation of the returns on the active portfolio is

According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of to .

Even low-quality forecasts have proven to be valuable because R-squares of only ____________ in regressions of analysts' forecasts can be used to substantially improve portfolio performance.

Active portfolio management consists of

The beta of an active portfolio is 1.45. The standard deviation of the returns on the market index is 22%. The nonsystematic variance of the active portfolio is 0.03. The standard deviation of the returns on the active portfolio is

Perfect timing ability is equivalent to having __________ on the market portfolio.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 27: The Theory of Active Portfolio Management

The Black-Litterman model is geared toward ____________ while the Treynor-Black model is geared toward ____________.

One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's

If you begin with a ______ and obtain additional data from an experiment, you can form a ______.

Consider these two investment strategies: Strategy1\% Strategy2\% Expected return 6 9 Standard deviation 0 4 Highest return 6 15 Lowest return 6 6 Strategy __________ is the dominant strategy because __________.

The beta of an active portfolio is 1.17. The standard deviation of the returns on the market index is 23%. The nonsystematic variance of the active portfolio is 0.06. The standard deviation of the returns on the active portfolio is

According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of __________ to __________.

Even low-quality forecasts have proven to be valuable because R-squares of only ____________ in regressions of analysts' forecasts can be used to substantially improve portfolio performance.

Active portfolio management consists of

The beta of an active portfolio is 1.45. The standard deviation of the returns on the market index is 22%. The nonsystematic variance of the active portfolio is 0.03. The standard deviation of the returns on the active portfolio is

Perfect timing ability is equivalent to having __________ on the market portfolio.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the Cfa Institute

Filters

The Black-Litterman model is geared toward while the Treynor-Black model is geared toward .

If you begin with a and obtain additional data from an experiment, you can form a .

Consider these two investment strategies: Strategy1\% Strategy2\% Expected return 6 9 Standard deviation 0 4 Highest return 6 15 Lowest return 6 6 Strategy is the dominant strategy because .

According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of to .