Question 1

A portfolio manager who is trying to generate alpha could use

Accepted Answer

A)  Hedge funds 
B)  Mutual funds 
C)  Insured asset allocation 
D)  ETFs 
E)  None of the above 
A)  Hedge funds 
B)  Mutual funds 
C)  Insured asset allocation 
D)  ETFs 
E)  None of the above A

Question 2

Value stocks would have the following characteristics:

Accepted Answer

A)  Low price/book, high price/earnings. 
B)  Low price/book, low price/earnings. 
C)  High EPS growth, high profitability. 
D)  Low EPS growth, high profitability. 
E)  None of the above. 
A)  Low price/book, high price/earnings. 
B)  Low price/book, low price/earnings. 
C)  High EPS growth, high profitability. 
D)  Low EPS growth, high profitability. 
E)  None of the above. B

Question 3

In equity portfolio management,tracking error occurs when

Accepted Answer

A)  The managed portfolio outperforms the benchmark portfolio. 
B)  The managed portfolio under performs the benchmark portfolio. 
C)  The return volatility of the managed portfolio is positively correlated with the return volatility of the benchmark portfolio. 
D)  The return volatility of the managed portfolio is negatively correlated with the return volatility of the benchmark portfolio. 
E)  The return volatility of the managed portfolio is not correlated with the return volatility of the benchmark portfolio. 
A)  The managed portfolio outperforms the benchmark portfolio. 
B)  The managed portfolio under performs the benchmark portfolio. 
C)  The return volatility of the managed portfolio is positively correlated with the return volatility of the benchmark portfolio. 
D)  The return volatility of the managed portfolio is negatively correlated with the return volatility of the benchmark portfolio. 
E)  The return volatility of the managed portfolio is not correlated with the return volatility of the benchmark portfolio. E

Question 4

It does not make economic sense for portfolio managers to try to "time" between different investment styles.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 15.1
Use the Information Below for the Following Problem(S)
A portfolio manager is trying to establish a strategic asset allocation for two different clients, Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and Tom Luck has a risk tolerance factor of 6. The characteristics of the three model portfolios under consideration are provided in the table below.
                               $\begin{array}{c}
\begin{array}{lll}
\text{Asset Mix}
\end{array}
\begin{array}{lll}
&&&
\end{array}
\begin{array}{lll}
Expecterd
\end{array}
\end{array}$
$\begin{array}{cllcc}
\text { Portfolio } & \text { Stock } & \text { Aond } & \begin{array}{c}
 \
\text { Return }
\end{array} & \text { Variance } \
\hline \text { A } & 0.75 & 0.25 & 0.12 & 0.45 \
\text { B } & 0.4 & 0.6 & 0.08 & 0.16 \
\text { C } & 0 . & 0.7 & 0.05 & 0.66
\end{array}$
-Refer to Exhibit 15.1.The expected utilities of Portfolios A,B and C for Bob Bowman are

Accepted Answer

A)  Portfolio A = 9.95, Portfolio B = 7.27, Portfolio C = 4.73 
B)  Portfolio A = 4.5, Portfolio B = 5.33, Portfolio C = 4.0 
C)  Portfolio A = 7.95, Portfolio B = 5.33, Portfolio C = 4.73 
D)  Portfolio A = 3.5, Portfolio B = 7.27, Portfolio C = 4.73 
E)  Portfolio A = 5.33, Portfolio B = 7.27, Portfolio C = 4.73 
A)  Portfolio A = 9.95, Portfolio B = 7.27, Portfolio C = 4.73 
B)  Portfolio A = 4.5, Portfolio B = 5.33, Portfolio C = 4.0 
C)  Portfolio A = 7.95, Portfolio B = 5.33, Portfolio C = 4.73 
D)  Portfolio A = 3.5, Portfolio B = 7.27, Portfolio C = 4.73 
E)  Portfolio A = 5.33, Portfolio B = 7.27, Portfolio C = 4.73

Question 6

In backtesting,computers are used to examine the composition and returns of portfolios based on historical data in order to determine if the investment strategy would have worked in the past.

Accepted Answer

A) True 
 B)False

Question 7

Active equity portfolio management is a long-term buy-and-hold strategy.

Accepted Answer

A) True 
 B)False

Question 8

The following is an example of a fundamental active equity portfolio management strategy.

Accepted Answer

A)  Contrarian investing. 
B)  Earnings momentum investing. 
C)  Low P/E and low P/BV investing. 
D)  Bottom up investing. 
E)  Investing on the basis of calendar effects. 
A)  Contrarian investing. 
B)  Earnings momentum investing. 
C)  Low P/E and low P/BV investing. 
D)  Bottom up investing. 
E)  Investing on the basis of calendar effects.

Question 9

Which of the following is not a technique for constructing a passive index portfolio?

Accepted Answer

A)  Full replication 
B)  Sampling 
C)  Quadratic programming 
D)  Linear programming 
E)  None of the above (that is, all are techniques for constructing a passive index portfolio) 
A)  Full replication 
B)  Sampling 
C)  Quadratic programming 
D)  Linear programming 
E)  None of the above (that is, all are techniques for constructing a passive index portfolio)

Question 10

If you have a portfolio with a market value of $100 million and a beta (measured against the S&P 500)of 1.5,then if the market rises by 10 percent,what value would you expect your portfolio to have?

Accepted Answer

A)  $100 million 
B)  $110 million 
C)  $150 million 
D)  $165 million 
E)  $1.65 billion 
A)  $100 million 
B)  $110 million 
C)  $150 million 
D)  $165 million 
E)  $1.65 billion

Question 11

In ____ asset allocation,the investor's risk tolerance and constraints are assumed to be constant over time.However,changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Accepted Answer

A)  Integrated 
B)  Strategic 
C)  Tactical 
D)  Insured 
E)  None of the above. 
A)  Integrated 
B)  Strategic 
C)  Tactical 
D)  Insured 
E)  None of the above.

Question 12

Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified.

Accepted Answer

A) True 
 B)False

Question 13

The goal of the passive portfolio manager is to minimize

Accepted Answer

A)  Alpha 
B)  Beta 
C)  Standard error 
D)  Tracking error 
E)  Portfolio risk 
A)  Alpha 
B)  Beta 
C)  Standard error 
D)  Tracking error 
E)  Portfolio risk

Question 14

An investor focusing on a growth strategy does all of the following except

Accepted Answer

A)  Focuses on the earnings per share (EPS) component on the P/E ratio. 
B)  Seek out investments with higher expected growth in earnings. 
C)  Implicitly assume that the P/E ratio will grow over the near term. 
D)  Focuses on the current and future economic "story" of a company. 
E)  All of the above statements are true. 
A)  Focuses on the earnings per share (EPS) component on the P/E ratio. 
B)  Seek out investments with higher expected growth in earnings. 
C)  Implicitly assume that the P/E ratio will grow over the near term. 
D)  Focuses on the current and future economic "story" of a company. 
E)  All of the above statements are true.

Question 15

Completeness funds are portfolios designed to complement active portfolios that do not cover the entire market.

Accepted Answer

A) True 
 B)False

Question 16

If the annual geometric mean for the equity risk premium is 8.4 percent,what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?

Accepted Answer

A)  7.20% 
B)  9.60% 
C)  9.70% 
D)  10.08% 
E)  14.29% 
A)  7.20% 
B)  9.60% 
C)  9.70% 
D)  10.08% 
E)  14.29%

Question 17

Exchange-Traded Funds (ETF)are depository receipts that give investors a pro rata claim on the capital gains and cash flows of securities held by financial institutions.

Accepted Answer

A) True 
 B)False

Question 18

An active portfolio manager sold $90 million of stocks in a year.If the portfolio had an average value of $110 million in assets under management what is the portfolio turnover ratio?

Accepted Answer

A)  22.2% 
B)  81.8% 
C)  90.0% 
D)  110.0% 
E)  122.2% 
A)  22.2% 
B)  81.8% 
C)  90.0% 
D)  110.0% 
E)  122.2%

Question 19

Exhibit 15.1
Use the Information Below for the Following Problem(S)
A portfolio manager is trying to establish a strategic asset allocation for two different clients, Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and Tom Luck has a risk tolerance factor of 6. The characteristics of the three model portfolios under consideration are provided in the table below.
                               $\begin{array}{c}
\begin{array}{lll}
\text{Asset Mix}
\end{array}
\begin{array}{lll}
&&&
\end{array}
\begin{array}{lll}
Expecterd
\end{array}
\end{array}$
$\begin{array}{cllcc}
\text { Portfolio } & \text { Stock } & \text { Aond } & \begin{array}{c}
 \
\text { Return }
\end{array} & \text { Variance } \
\hline \text { A } & 0.75 & 0.25 & 0.12 & 0.45 \
\text { B } & 0.4 & 0.6 & 0.08 & 0.16 \
\text { C } & 0 . & 0.7 & 0.05 & 0.66
\end{array}$
-Refer to Exhibit 15.1.The recommended portfolio for Bob Bowman is

Accepted Answer

A)  Portfolio A because it has expected utility of 9.95 
B)  Portfolio A because it has expected utility of 4.5 
C)  Portfolio B because it has expected utility of 5.33 
D)  Portfolio B because it has expected utility of 7.27 
E)  Portfolio C because it has expected utility of 6.75 
A)  Portfolio A because it has expected utility of 9.95 
B)  Portfolio A because it has expected utility of 4.5 
C)  Portfolio B because it has expected utility of 5.33 
D)  Portfolio B because it has expected utility of 7.27 
E)  Portfolio C because it has expected utility of 6.75

Question 20

With dollar-cost averaging a manager purchases fewer shares when stock prices are low and more shares when stock prices are high.

Accepted Answer

A) True 
 B)False

Exam 15: Equity Portfolio Management Stragtegies

A portfolio manager who is trying to generate alpha could use

Value stocks would have the following characteristics:

In equity portfolio management,tracking error occurs when

It does not make economic sense for portfolio managers to try to "time" between different investment styles.

In backtesting,computers are used to examine the composition and returns of portfolios based on historical data in order to determine if the investment strategy would have worked in the past.

Active equity portfolio management is a long-term buy-and-hold strategy.

The following is an example of a fundamental active equity portfolio management strategy.

Which of the following is not a technique for constructing a passive index portfolio?

If you have a portfolio with a market value of $100 million and a beta (measured against the S&P 500)of 1.5,then if the market rises by 10 percent,what value would you expect your portfolio to have?

In ____ asset allocation,the investor's risk tolerance and constraints are assumed to be constant over time.However,changes in capital market conditions result in changes in the portfolio's stock-bond mix.

Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified.

The goal of the passive portfolio manager is to minimize

An investor focusing on a growth strategy does all of the following except

Completeness funds are portfolios designed to complement active portfolios that do not cover the entire market.

If the annual geometric mean for the equity risk premium is 8.4 percent,what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?

Exchange-Traded Funds (ETF)are depository receipts that give investors a pro rata claim on the capital gains and cash flows of securities held by financial institutions.

An active portfolio manager sold $90 million of stocks in a year.If the portfolio had an average value of $110 million in assets under management what is the portfolio turnover ratio?

With dollar-cost averaging a manager purchases fewer shares when stock prices are low and more shares when stock prices are high.

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

Filters