Question 1

What is the major difference between the Sharpe and Treynor measures?

Accepted Answer

Sharpe uses standard deviation as the ri

Question 2

The information in the following table is to be used to answer questions 
$\begin{array}{|l|c|c|c|c|}
\hline \text { Fund } & \text { Standard Deviation } & \text { Beta } & \begin{array}{c}
\text { Jensen's } \
\text { Alpha }
\end{array} & \mathbf{R}^{\mathbf{2}} \
\hline \text { Fund 1 } & 1.97 & 1.0 & 1.3 & 0.95 \
\hline \text { Fund 2 } & 2.97 & 0.8 & 0.6^{*} & 0.80 \
\hline \text { Fund 3 } & 3.82 & 1.2 & -3.5^{*} & 0.90 \
\hline \text { Fund 4 } & 3.50 & 1.4 & 4.2 & 0.65 \
\hline
\end{array}$
-Which of the funds has the most market risk?

Accepted Answer

A)  Fund 1 
B)  Fund 2 
C)  Fund 3 
D)  Fund 4 
A)  Fund 1 
B)  Fund 2 
C)  Fund 3 
D)  Fund 4

Question 3

GIPS® requirements include: uniformity in certain performance calculations and disclosures; inclusion of all actual fee-paying discretionary portfolios in composites with similar objectives; compliant history for at least 5 years, or since inception if less than 5 years.

Accepted Answer

A) True 
 B)False

Question 4

The use of the Treynor measure implies that total risk is the proper measure of risk in performance evaluation.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about portfolio return calculation is most accurate? Time-weighted returns are best for measuring the returns of a:

Accepted Answer

A)  fund manager, whereas money-weighted returns are best for a portfolio owner. 
B)  portfolio owner, whereas money-weighted returns are best for a fund manager. 
C)  fund manager, whereas money-weighted returns are no longer used in practice. 
D)  portfolio owner, whereas money-weighted returns are generally used in practice. 
A)  fund manager, whereas money-weighted returns are best for a portfolio owner. 
B)  portfolio owner, whereas money-weighted returns are best for a fund manager. 
C)  fund manager, whereas money-weighted returns are no longer used in practice. 
D)  portfolio owner, whereas money-weighted returns are generally used in practice.

Question 6

The information in the following table is to be used to answer questions 
$\begin{array}{|l|c|c|c|c|}
\hline \text { Fund } & \text { Standard Deviation } & \text { Beta } & \begin{array}{c}
\text { Jensen's } \
\text { Alpha }
\end{array} & \mathbf{R}^{\mathbf{2}} \
\hline \text { Fund 1 } & 1.97 & 1.0 & 1.3 & 0.95 \
\hline \text { Fund 2 } & 2.97 & 0.8 & 0.6^{*} & 0.80 \
\hline \text { Fund 3 } & 3.82 & 1.2 & -3.5^{*} & 0.90 \
\hline \text { Fund 4 } & 3.50 & 1.4 & 4.2 & 0.65 \
\hline
\end{array}$
-Which fund has the most total risk?

Accepted Answer

A)  Fund 1 
B)  Fund 2 
C)  Fund 3 
D)  Fund 4 
A)  Fund 1 
B)  Fund 2 
C)  Fund 3 
D)  Fund 4

Question 7

Investors who have all their assets in one portfolio of securities should rely on the Sharpe measure rather than the Treynor measure.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements about the Sharpe ratio and Treynor ratio is most accurate? The Sharpe ratio is based on:

Accepted Answer

A)  total risk, whereas the Treynor ratio is based on systematic risk. 
B)  systematic risk, whereas the Treynor ratio is based on total risk. 
C)  unsystematic risk, whereas the Treynor ratio is based on systematic risk. 
D)  total risk, whereas the Treynor ratio is based on unsystematic risk. 
A)  total risk, whereas the Treynor ratio is based on systematic risk. 
B)  systematic risk, whereas the Treynor ratio is based on total risk. 
C)  unsystematic risk, whereas the Treynor ratio is based on systematic risk. 
D)  total risk, whereas the Treynor ratio is based on unsystematic risk.

Question 9

Carl invested $100,000 in a fund, which earned 8% over the next year. At the end of the year, he invested an additional $50,000 and the fund earned 18% over the next year. Carl withdrew no money from the fund. Which of the following statements about time-weighted return (TWR) and money-weighted return (MWR) is most accurate?

Accepted Answer

A)  TWR is greater than MWR, and MWR is the more appropriate measure for Carl. 
B)  MWR is greater than TWR, and MWR is the more appropriate measure for Carl. 
C)  TWR is greater than MWR, and TWR is the more appropriate measure for Carl. 
D)  MWR is greater than TWR, and TWR is the more appropriate measure for Carl. 
A)  TWR is greater than MWR, and MWR is the more appropriate measure for Carl. 
B)  MWR is greater than TWR, and MWR is the more appropriate measure for Carl. 
C)  TWR is greater than MWR, and TWR is the more appropriate measure for Carl. 
D)  MWR is greater than TWR, and TWR is the more appropriate measure for Carl.

Question 10

Sharpe's measure is a ratio of excess return to total risk.

Accepted Answer

A) True 
 B)False

Question 11

The purpose of performance attribution is to assess the risk of a portfolio.

Accepted Answer

A) True 
 B)False

Question 12

Assume Portfolio A and Portfolio B are well-diversified; however, Portfolio A has a higher standard deviation than Portfolio B. Based on this information, the Sharpe ratio will give Portfolio A:

Accepted Answer

A)  the higher rank, and the Treynor ratio will give Portfolio B the higher rank. 
B)  the lower rank, and the Treynor ratio will give Portfolio B the lower rank. 
C)  the same rank as the rank assigned by the Treynor ratio. 
D)  a rank that varies directly based on the overall market risk. 
A)  the higher rank, and the Treynor ratio will give Portfolio B the higher rank. 
B)  the lower rank, and the Treynor ratio will give Portfolio B the lower rank. 
C)  the same rank as the rank assigned by the Treynor ratio. 
D)  a rank that varies directly based on the overall market risk.

Question 13

Total risk of a portfolio is measured by the beta coefficient.

Accepted Answer

A) True 
 B)False

Question 14

The information ratio is calculated as the ratio of:

Accepted Answer

A)  mean active return to tracking risk. 
B)  alpha to beta. 
C)  excess return to portfolio standard deviation. 
D)  portfolio excess return to tracking risk. 
A)  mean active return to tracking risk. 
B)  alpha to beta. 
C)  excess return to portfolio standard deviation. 
D)  portfolio excess return to tracking risk.

Question 15

What alternative portfolio mirrors the objectives of a portfolio under evaluation?

Accepted Answer

A)  Market average index 
B)  Efficient portfolio 
C)  Benchmark portfolio 
D)  Performance standard 
A)  Market average index 
B)  Efficient portfolio 
C)  Benchmark portfolio 
D)  Performance standard

Question 16

What is performance attribution?

Accepted Answer

Performance attribution is an attempt to

Question 17

Treynor's measure is a ratio of excess return to systematic risk.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is true regarding M2? It produces a measure of portfolio performance that:

Accepted Answer

A)  is adjusted for systematic risk. 
B)  can be compared directly to the risk-free rate. 
C)  can be compared directly with the market return. 
D)  indicates what would be possible if the portfolio was fully leveraged. 
A)  is adjusted for systematic risk. 
B)  can be compared directly to the risk-free rate. 
C)  can be compared directly with the market return. 
D)  indicates what would be possible if the portfolio was fully leveraged.

Question 19

The higher the Sharpe ratio, the better the risk-adjusted portfolio performance.

Accepted Answer

A) True 
 B)False

Question 20

The information in the following table is to be used to answer questions 
$\begin{array}{|l|c|c|c|c|}
\hline \text { Fund } & \text { Standard Deviation } & \text { Beta } & \begin{array}{c}
\text { Jensen's } \
\text { Alpha }
\end{array} & \mathbf{R}^{\mathbf{2}} \
\hline \text { Fund 1 } & 1.97 & 1.0 & 1.3 & 0.95 \
\hline \text { Fund 2 } & 2.97 & 0.8 & 0.6^{*} & 0.80 \
\hline \text { Fund 3 } & 3.82 & 1.2 & -3.5^{*} & 0.90 \
\hline \text { Fund 4 } & 3.50 & 1.4 & 4.2 & 0.65 \
\hline
\end{array}$
-Which fund is least well-diversified?

Accepted Answer

A)  Fund 1 
B)  Fund 2 
C)  Fund 3 
D)  Fund 4 
A)  Fund 1 
B)  Fund 2 
C)  Fund 3 
D)  Fund 4

Exam 22: Evaluation of Investment Performance

What is the major difference between the Sharpe and Treynor measures?

The information in the following table is to be used to answer questions Fund Standard Deviation Beta Jensen's Alpha Fund 1 1.97 1.0 1.3 0.95 Fund 2 2.97 0.8 0. 0.80 Fund 3 3.82 1.2 -3. 0.90 Fund 4 3.50 1.4 4.2 0.65 -Which of the funds has the most market risk?

GIPS® requirements include: uniformity in certain performance calculations and disclosures; inclusion of all actual fee-paying discretionary portfolios in composites with similar objectives; compliant history for at least 5 years, or since inception if less than 5 years.

The use of the Treynor measure implies that total risk is the proper measure of risk in performance evaluation.

Which of the following statements about portfolio return calculation is most accurate? Time-weighted returns are best for measuring the returns of a:

The information in the following table is to be used to answer questions Fund Standard Deviation Beta Jensen's Alpha Fund 1 1.97 1.0 1.3 0.95 Fund 2 2.97 0.8 0. 0.80 Fund 3 3.82 1.2 -3. 0.90 Fund 4 3.50 1.4 4.2 0.65 -Which fund has the most total risk?

Investors who have all their assets in one portfolio of securities should rely on the Sharpe measure rather than the Treynor measure.

Which of the following statements about the Sharpe ratio and Treynor ratio is most accurate? The Sharpe ratio is based on:

Sharpe's measure is a ratio of excess return to total risk.

The purpose of performance attribution is to assess the risk of a portfolio.

Assume Portfolio A and Portfolio B are well-diversified; however, Portfolio A has a higher standard deviation than Portfolio B. Based on this information, the Sharpe ratio will give Portfolio A:

Total risk of a portfolio is measured by the beta coefficient.

The information ratio is calculated as the ratio of:

What alternative portfolio mirrors the objectives of a portfolio under evaluation?

What is performance attribution?

Treynor's measure is a ratio of excess return to systematic risk.

Which of the following is true regarding M2? It produces a measure of portfolio performance that:

The higher the Sharpe ratio, the better the risk-adjusted portfolio performance.

The information in the following table is to be used to answer questions Fund Standard Deviation Beta Jensen's Alpha Fund 1 1.97 1.0 1.3 0.95 Fund 2 2.97 0.8 0. 0.80 Fund 3 3.82 1.2 -3. 0.90 Fund 4 3.50 1.4 4.2 0.65 -Which fund is least well-diversified?

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