Question 1

What are some of the problems associated with using risk-adjusted portfolio performance measures?

Accepted Answer

(1) The Treasury bill rate may not be a

Question 2

Standard deviation, beta, and coefficient of determination are readily available for mutual funds from sources like Morningstar.

Accepted Answer

A) True 
 B)False

Question 3

Which organization has issued minimum standards for the reporting of investment performance?

Accepted Answer

A)  FINRA 
B)  Securities and Exchange Commission (SE
C)  
C)  Association for Security Analysts and Portfolio Managers 
D)  CFA Institute 
A)  FINRA 
B)  Securities and Exchange Commission (SE
C)  
C)  Association for Security Analysts and Portfolio Managers 
D)  CFA Institute

Question 4

A portfolio's tracking risk indicates the portfolio's:

Accepted Answer

A)  total volatility. 
B)  systematic risk. 
C)  divergence from its benchmark. 
D)  downside risk. 
A)  total volatility. 
B)  systematic risk. 
C)  divergence from its benchmark. 
D)  downside risk.

Question 5

What are the appropriate uses of the Sharpe and the Treynor measures?

Accepted Answer

Sharpe's measure considers total risk an

Question 6

If we are to assess performance carefully, we must do so on what kind of basis?

Accepted Answer

A)  Quarterly 
B)  Annual 
C)  Attribution-weighted 
D)  Risk-adjusted 
A)  Quarterly 
B)  Annual 
C)  Attribution-weighted 
D)  Risk-adjusted

Question 7

What is the major question when evaluating a portfolio's performance?

Accepted Answer

A)  Does the portfolio align with the investor's characteristics? 
B)  Does the expected return of the portfolio meet the needs of the investor? 
C)  Is the return on the portfolio adequate to compensate for its risk? 
D)  Is the portfolio's risk in line with the personal characteristics of the investor? 
A)  Does the portfolio align with the investor's characteristics? 
B)  Does the expected return of the portfolio meet the needs of the investor? 
C)  Is the return on the portfolio adequate to compensate for its risk? 
D)  Is the portfolio's risk in line with the personal characteristics of the investor?

Question 8

A $50 million portfolio reports a 5% monthly VaR of $3 million. Explain what this VaR indicates and identify the ramifications for monthly returns over the next five years.

Accepted Answer

Going forward, there is a 5% chance of t

Question 9

Value at risk (VaR) is a measure of the:

Accepted Answer

A)  maximum potential loss. 
B)  amount of loss that should be expected in the future. 
C)  minimum loss that should be expected if a low probability negative event occurs. 
D)  maximum loss that is anticipated if a market crash occurs. 
A)  maximum potential loss. 
B)  amount of loss that should be expected in the future. 
C)  minimum loss that should be expected if a low probability negative event occurs. 
D)  maximum loss that is anticipated if a market crash occurs.

Question 10

Relative to its benchmark, an index fund should have an upside and downside capture of approximately:

Accepted Answer

A)  0%. 
B)  50%. 
C)  75%. 
D)  100%. 
A)  0%. 
B)  50%. 
C)  75%. 
D)  100%.

Question 11

Time-weighted, as opposed to money-weighted, return captures the return actually earned by the fund manager.

Accepted Answer

A) True 
 B)False

Question 12

Performance attribution separates return performance into the following two sources:

Accepted Answer

A)  security analysis and portfolio management. 
B)  money market and capital market securities. 
C)  traditional assets and alternative assets. 
D)  asset allocation and security selection. 
A)  security analysis and portfolio management. 
B)  money market and capital market securities. 
C)  traditional assets and alternative assets. 
D)  asset allocation and security selection.

Question 13

What are the two approaches to perform style analysis on a portfolio? Briefly explain each.

Accepted Answer

The two approaches are returns-based sty

Question 14

Consider the data for the JJ Value Fund and its benchmark the Russell Value Index. The YTM on T-bonds is 3.8%.
 $\begin{array}{|l|c|c|c|}
\hline & \text { JJ Fund } & \text { Russell Value } & \text { Difference } \
\hline \text { Mean Return } & 14.2 \% & 12.7 \% & 1.5 \% \
\hline \text { Standard Deviation } & 25.9 \% & 23.6 \% & 3.9 \% * \
\hline \text { Beta } & 1.21 & 1.14 & \text { NA } \
\hline \text { Downside Deviation (MAR }=2 \%) & 16.2 \% & 15.9 \% & \text { NA } \
\hline
\end{array}$ * * Derived as the standard deviation of active return
Find the following risk-adjusted performance measures for the JJ Fund and the Russell Index: Sharpe ratio, Treynor ratio, Sortino ratio and Information ratio.

Accepted Answer

Sharpe ratio JJ Fund: (14.2 - 3.8

Question 15

In assessing a manager's performance, his supervisor determines that his security selection contributed nothing to his outperformance i.e., all of his outperformance came from asset allocation. Does this mean the manager should not be rewarded for outperforming the benchmark?

Accepted Answer

Managers can outperform based on securit

Question 16

Which of the following is the largest recognized problem with style analysis?

Accepted Answer

A)  Funds frequently do not maintain style consistency over time. 
B)  Comparing style across funds is nearly impossible. 
C)  It is very difficult to determine the style a fund is following. 
D)  There are too many alternative means to calculate a fund's style. 
A)  Funds frequently do not maintain style consistency over time. 
B)  Comparing style across funds is nearly impossible. 
C)  It is very difficult to determine the style a fund is following. 
D)  There are too many alternative means to calculate a fund's style.

Question 17

A large-cap manager that has the S&P 500 as her benchmark decides to increase her allocation to cash. What impact will this have on total risk, active risk and active share of her portfolio?

Accepted Answer

A)  Total risk and active risk will decrease, and active share will increase. 
B)  Total risk will decrease, and active risk and active share will increase. 
C)  Total risk and active share will decrease, and active risk will increase. 
D)  Total risk, active risk and active share will all decrease. 
A)  Total risk and active risk will decrease, and active share will increase. 
B)  Total risk will decrease, and active risk and active share will increase. 
C)  Total risk and active share will decrease, and active risk will increase. 
D)  Total risk, active risk and active share will all decrease.

Question 18

A retired couple's assets consist of a $100,000 house, a $400,000 securities portfolio, a $15,000 car, and personal effects. Would they be more concerned with the Sharpe measure or the Treynor measure for the portfolio?

Accepted Answer

Since the securities portfolio constitut

Question 19

To claim GIPS compliance in reporting portfolio performance, the standards require:

Accepted Answer

A)  a 5-year performance record, or since inception if the fund is less than 5-years old. 
B)  that the majority of the firm's funds meet GIPS standards. 
C)  that the majority of the firm's portfolios are included in the performance record. 
D)  a firm build toward a minimum record of 20 years of reported performance. 
A)  a 5-year performance record, or since inception if the fund is less than 5-years old. 
B)  that the majority of the firm's funds meet GIPS standards. 
C)  that the majority of the firm's portfolios are included in the performance record. 
D)  a firm build toward a minimum record of 20 years of reported performance.

Question 20

Which of the following measures indicates the percentage of the variation in a portfolio's returns that is explained by variation in the market's returns?

Accepted Answer

A)  Standard deviation 
B)  Coefficient of determination 
C)  Beta 
D)  Alpha 
A)  Standard deviation 
B)  Coefficient of determination 
C)  Beta 
D)  Alpha

Exam 22: Evaluation of Investment Performance

What are some of the problems associated with using risk-adjusted portfolio performance measures?

Standard deviation, beta, and coefficient of determination are readily available for mutual funds from sources like Morningstar.

Which organization has issued minimum standards for the reporting of investment performance?

A portfolio's tracking risk indicates the portfolio's:

What are the appropriate uses of the Sharpe and the Treynor measures?

If we are to assess performance carefully, we must do so on what kind of basis?

What is the major question when evaluating a portfolio's performance?

A $50 million portfolio reports a 5% monthly VaR of $3 million. Explain what this VaR indicates and identify the ramifications for monthly returns over the next five years.

Value at risk (VaR) is a measure of the:

Relative to its benchmark, an index fund should have an upside and downside capture of approximately:

Time-weighted, as opposed to money-weighted, return captures the return actually earned by the fund manager.

Performance attribution separates return performance into the following two sources:

What are the two approaches to perform style analysis on a portfolio? Briefly explain each.

In assessing a manager's performance, his supervisor determines that his security selection contributed nothing to his outperformance i.e., all of his outperformance came from asset allocation. Does this mean the manager should not be rewarded for outperforming the benchmark?

Which of the following is the largest recognized problem with style analysis?

A large-cap manager that has the S&P 500 as her benchmark decides to increase her allocation to cash. What impact will this have on total risk, active risk and active share of her portfolio?

A retired couple's assets consist of a $100,000 house, a $400,000 securities portfolio, a $15,000 car, and personal effects. Would they be more concerned with the Sharpe measure or the Treynor measure for the portfolio?

To claim GIPS compliance in reporting portfolio performance, the standards require:

Which of the following measures indicates the percentage of the variation in a portfolio's returns that is explained by variation in the market's returns?

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Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

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Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

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Bonds: Analysis and Strategy

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