Question 1

A fundamental tenet of the contrarian investment strategy is the notion that

Accepted Answer

A)  All stock returns are mean reverting. 
B)  Certain stocks outperform others during different stages of the business cycle. 
C)  Value stock investing is superior to growth stock investing. 
D)  Growth stock investing is superior to value stock investing. 
E)  None of the above. 
A)  All stock returns are mean reverting. 
B)  Certain stocks outperform others during different stages of the business cycle. 
C)  Value stock investing is superior to growth stock investing. 
D)  Growth stock investing is superior to value stock investing. 
E)  None of the above.

Question 2

An advantage of quadratic programming is that it relies on historical correlations.

Accepted Answer

A) True 
 B)False

Question 3

Exchange traded funds

Accepted Answer

A)  Are exactly the same as index mutual funds. 
B)  Can be bought and sold like common stocks. 
C)  Can be sold short. 
D)  a and b. 
E)  b and c. 
A)  Are exactly the same as index mutual funds. 
B)  Can be bought and sold like common stocks. 
C)  Can be sold short. 
D)  a and b. 
E)  b and c.

Question 4

Fund XYZ had a pretax return of 10.2% and a tax-adjusted return of 9.5%.Calculate Fund XYZ's tax cost ratio.

Accepted Answer

A)  0.006 
B)  0.106 
C)  0.116 
D)  0.342 
E)  0.635 
A)  0.006 
B)  0.106 
C)  0.116 
D)  0.342 
E)  0.635

Question 5

All of the following are advantages of ETFs over mutual funds except

Accepted Answer

A)  Ability for continuous trading while markets are open 
B)  Ability to time capital gain tax realizations 
C)  Smaller management fee 
D)  Can be bought and sold like common stock 
E)  Smaller brokerage commission 
A)  Ability for continuous trading while markets are open 
B)  Ability to time capital gain tax realizations 
C)  Smaller management fee 
D)  Can be bought and sold like common stock 
E)  Smaller brokerage commission

Question 6

The goal of a passive portfolio is to track the index as closely as possible.

Accepted Answer

A) True 
 B)False

Question 7

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 Tom Luck 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 8

Which of the following statements regarding 130/30 strategies is false?

Accepted Answer

A)  Analyst can make full use of their knowledge of undervalued and overvalued stocks. 
B)  Long positions up to 130% of the value of the portfolio cab be made. 
C)  Short positions up to 30% of the value of the portfolio can be made. 
D)  130/30 strategies are not very popular due to the increased risk of hedging. 
E)  The use of short positions creates leverage. 
A)  Analyst can make full use of their knowledge of undervalued and overvalued stocks. 
B)  Long positions up to 130% of the value of the portfolio cab be made. 
C)  Short positions up to 30% of the value of the portfolio can be made. 
D)  130/30 strategies are not very popular due to the increased risk of hedging. 
E)  The use of short positions creates leverage.

Question 9

Which of the following statements concerning active equity portfolio management strategies is true?

Accepted Answer

A)  The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs) on a risk-adjusted basis. 
B)  An actively managed equity portfolio has lower total transaction costs. 
C)  An actively managed equity portfolio has lower risk than the passive benchmark. 
D)  A key to success for an actively managed equity portfolio is to maximize trading activity. 
E)  All of the above 
A)  The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs) on a risk-adjusted basis. 
B)  An actively managed equity portfolio has lower total transaction costs. 
C)  An actively managed equity portfolio has lower risk than the passive benchmark. 
D)  A key to success for an actively managed equity portfolio is to maximize trading activity. 
E)  All of the above

Question 10

Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index.

Accepted Answer

A) True 
 B)False

Question 11

The three basic techniques for constructing a passive index are: full replication,sampling and linear programming.

Accepted Answer

A) True 
 B)False

Question 12

Style investing allows control of the total portfolio to be shared between investment managers and pension fund managers.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements regarding momentum strategies is true?

Accepted Answer

A)  Price momentum is a fundamental strategy. 
B)  Earnings momentum is a technical strategy. 
C)  Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings. 
D)  The earnings momentum investor will most likely acquire stocks for companies that have positive earnings surprises. 
E)  All of the above statements are true 
A)  Price momentum is a fundamental strategy. 
B)  Earnings momentum is a technical strategy. 
C)  Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings. 
D)  The earnings momentum investor will most likely acquire stocks for companies that have positive earnings surprises. 
E)  All of the above statements are true

Question 14

Following an earnings momentum strategy,an investor acquires stocks that have enjoyed above-market stock price increases.

Accepted Answer

A) True 
 B)False

Question 15

The table below provides returns on a portfolio along with returns for the corresponding benchmark index for the past eight quarters.The table also provides the difference between portfolio returns and the benchmark index,the average of these differences over the past eight quarters and the standard deviation of these differences.
$\begin{array}{cccc}
\text { Period } & \text { Portfolio } & \text { Index } & \text { Difference } \
\hline 1 & 0.05 & 0.027 & 0.023 \
2 & -0.036 & -0.046 & 0.010 \
3 & 0.022 & 0.019 & 0.003 \
4 & 0.012 & 0.022 & -0.010 \
5 & -0.003 & -0.001 & -0.002 \
6 & -0.023 & -0.03 & 0.007 \
7 & 0.089 & 0.081 & 0.008 \
8 & -0.008 & 0.006 & -0.014 \
\text { Average } & & & 0.003 \
\text { SD } & & & 0.011789
\end{array}$

The annualized tracking error for this period is

Accepted Answer

A)  2.36% 
B)  4.08% 
C)  2.89% 
D)  3.33% 
E)  1.18% 
A)  2.36% 
B)  4.08% 
C)  2.89% 
D)  3.33% 
E)  1.18%

Question 16

Which of the following statements about investment style is false?

Accepted Answer

A)  Growth stocks generally have smaller capitalizations than value stocks. 
B)  Value stocks have P/E and P/B ratios significantly lower than those of growth stocks. 
C)  Value stocks dividend yields are much higher than those of growth stocks. 
D)  Growth and levels of earnings is higher in growth stocks. 
E)  Value stocks have a higher risk premium. 
A)  Growth stocks generally have smaller capitalizations than value stocks. 
B)  Value stocks have P/E and P/B ratios significantly lower than those of growth stocks. 
C)  Value stocks dividend yields are much higher than those of growth stocks. 
D)  Growth and levels of earnings is higher in growth stocks. 
E)  Value stocks have a higher risk premium.

Question 17

A benchmark portfolio is defined as a passive portfolio whose average characteristics match the client's risk-return objectives.

Accepted Answer

A) True 
 B)False

Question 18

The asset allocation strategy that separately examines capital market conditions and the investor's objectives and constraints is called

Accepted Answer

A)  Integrated asset allocation. 
B)  Tactical asset allocation. 
C)  Sector rotation. 
D)  Strategic asset allocation. 
E)  Insured asset allocation. 
A)  Integrated asset allocation. 
B)  Tactical asset allocation. 
C)  Sector rotation. 
D)  Strategic asset allocation. 
E)  Insured asset allocation.

Question 19

Growth oriented investors focus on the price component of the Price/Earnings ratio.

Accepted Answer

A) True 
 B)False

Question 20

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 Tom Luck 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 = 6.75 
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 = 6.75

Exam 15: Equity Portfolio Management Stragtegies

A fundamental tenet of the contrarian investment strategy is the notion that

An advantage of quadratic programming is that it relies on historical correlations.

Exchange traded funds

Fund XYZ had a pretax return of 10.2% and a tax-adjusted return of 9.5%.Calculate Fund XYZ's tax cost ratio.

All of the following are advantages of ETFs over mutual funds except

The goal of a passive portfolio is to track the index as closely as possible.

Which of the following statements regarding 130/30 strategies is false?

Which of the following statements concerning active equity portfolio management strategies is true?

Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index.

The three basic techniques for constructing a passive index are: full replication,sampling and linear programming.

Style investing allows control of the total portfolio to be shared between investment managers and pension fund managers.

Which of the following statements regarding momentum strategies is true?

Following an earnings momentum strategy,an investor acquires stocks that have enjoyed above-market stock price increases.

Which of the following statements about investment style is false?

A benchmark portfolio is defined as a passive portfolio whose average characteristics match the client's risk-return objectives.

The asset allocation strategy that separately examines capital market conditions and the investor's objectives and constraints is called

Growth oriented investors focus on the price component of the Price/Earnings ratio.

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

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