Question 1

In returns-based style analysis a coefficient of determination of 95% would suggest that

Accepted Answer

A)  The portfolio manager outperformed 95% of his peers. 
B)  The portfolio manager was outperformed by 95% of his peers. 
C)  95% of the portfolio return variability could be attributed to portfolio style. 
D)  95% of the portfolio return variability could be attributed to stock selection skills. 
E)  5% of the portfolio return variability could be attributed to portfolio style. 
A)  The portfolio manager outperformed 95% of his peers. 
B)  The portfolio manager was outperformed by 95% of his peers. 
C)  95% of the portfolio return variability could be attributed to portfolio style. 
D)  95% of the portfolio return variability could be attributed to stock selection skills. 
E)  5% of the portfolio return variability could be attributed to portfolio style.

Question 2

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not considered a mainstream investment style?

Accepted Answer

A)  Value 
B)  Growth 
C)  Market-oriented 
D)  Benchmark 
E)  Small-cap 
A)  Value 
B)  Growth 
C)  Market-oriented 
D)  Benchmark 
E)  Small-cap

Question 4

A contrarian investment strategy is based on the belief that

Accepted Answer

A)  Stock returns are mean reverting. 
B)  The best time to buy is when other investors are bullish. 
C)  Rising stocks will continue to rise. 
D)  Passive management is preferred to active management. 
E)  A long/short portfolio will outperform a long only portfolio. 
A)  Stock returns are mean reverting. 
B)  The best time to buy is when other investors are bullish. 
C)  Rising stocks will continue to rise. 
D)  Passive management is preferred to active management. 
E)  A long/short portfolio will outperform a long only portfolio.

Question 5

The following are ways to implement index portfolio investing

Accepted Answer

A)  Buying shares in index mutual funds 
B)  Buying hedge funds. 
C)  Buying exchange traded funds 
D)  a and b. 
E)  a and c. 
A)  Buying shares in index mutual funds 
B)  Buying hedge funds. 
C)  Buying exchange traded funds 
D)  a and b. 
E)  a and c.

Question 6

An advantage of sampling is that portfolio returns will not track the index as closely as with full replication.

Accepted Answer

A) True 
 B)False

Question 7

Style investing involves constructing portfolios in such a way as to capture one or more of the characteristics of equity securities.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?

Accepted Answer

A)  Time the markets by shifting between different types of securities based on market forecasts and estimated risk premiums. 
B)  Shift funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the "hot" concept before the remainder of the market does. 
C)  Individual stockpicking in order to buy low and sell high. 
D)  Choices a and b only 
E)  All of the above 
A)  Time the markets by shifting between different types of securities based on market forecasts and estimated risk premiums. 
B)  Shift funds between the various equity sectors, industries, investment styles, etc., in order to take advantage of the "hot" concept before the remainder of the market does. 
C)  Individual stockpicking in order to buy low and sell high. 
D)  Choices a and b only 
E)  All of the above

Question 9

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

Accepted Answer

A) True 
 B)False

Question 10

____ is a strategy used because the market seems to reward companies that have steady,above average earnings growth,or whose prices are rising because of market optimism.

Accepted Answer

A)  Relative strength 
B)  Asset momentum 
C)  Rotational attribution 
D)  All of the above. 
E)  None of the above. 
A)  Relative strength 
B)  Asset momentum 
C)  Rotational attribution 
D)  All of the above. 
E)  None of the above.

Question 11

Growth 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.

Question 12

In ____ strategy,certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

Accepted Answer

A)  Sector rotation 
B)  Price momentum 
C)  Earnings momentum 
D)  Return rotation 
E)  None of the above 
A)  Sector rotation 
B)  Price momentum 
C)  Earnings momentum 
D)  Return rotation 
E)  None of the above

Question 13

A portfolio management strategy that overweights a particular industry,relative to the benchmark portfolio,based on the next expected phase of the business cycle is called

Accepted Answer

A)  Tactical asset allocation. 
B)  Indexing. 
C)  Sector rotation. 
D)  Contrarian investing. 
E)  Bottom up investing. 
A)  Tactical asset allocation. 
B)  Indexing. 
C)  Sector rotation. 
D)  Contrarian investing. 
E)  Bottom up investing.

Question 14

A Long futures positions in the S&P500 has the effect of ____ portfolio exposure to equities,while short futures positions in the S&P500 has the effect of ____ portfolio exposure to equities.

Accepted Answer

A)  Increasing, decreasing. 
B)  Decreasing, increasing, 
C)  Increasing, increasing. 
D)  Decreasing, decreasing. 
E)  None of the above. 
A)  Increasing, decreasing. 
B)  Decreasing, increasing, 
C)  Increasing, increasing. 
D)  Decreasing, decreasing. 
E)  None of the above.

Question 15

Growth stocks consistently outperform value stocks.

Accepted Answer

A) True 
 B)False

Question 16

There is a direct relationship between a passive portfolio's tracking error relative to its index and the time and expense necessary to create and maintain the portfolio.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not considered an active management strategy?

Accepted Answer

A)  Sector rotation 
B)  Use of factor models 
C)  Quantitative screens 
D)  Full replication 
E)  Linear programming 
A)  Sector rotation 
B)  Use of factor models 
C)  Quantitative screens 
D)  Full replication 
E)  Linear programming

Question 18

Which of the following statements is false?

Accepted Answer

A)  A manager's choice to align with an investment style communicates information to clients about the investor's focus, area of expertise, and stock evaluation methods. 
B)  An investment manager's style cannot be used as a basis for measuring the manager's performance relative to a benchmark. 
C)  Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified. 
D)  Style investing allows control of the total portfolio to be shared between the investment managers and a knowledgeable sponsor. 
E)  None of the above (all are true statements) 
A)  A manager's choice to align with an investment style communicates information to clients about the investor's focus, area of expertise, and stock evaluation methods. 
B)  An investment manager's style cannot be used as a basis for measuring the manager's performance relative to a benchmark. 
C)  Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified. 
D)  Style investing allows control of the total portfolio to be shared between the investment managers and a knowledgeable sponsor. 
E)  None of the above (all are true statements)

Question 19

Which of the following is not considered an asset allocation strategy?

Accepted Answer

A)  Integrated asset allocation 
B)  Strategic asset allocation 
C)  Tactical asset allocation 
D)  Insured asset allocation 
E)  None of the above (that is, all are asset allocation strategies) 
A)  Integrated asset allocation 
B)  Strategic asset allocation 
C)  Tactical asset allocation 
D)  Insured asset allocation 
E)  None of the above (that is, all are asset allocation strategies)

Question 20

Sharpe's (1991)study reveals that active managers typically outperform passive managers even after transaction costs and fees.

Accepted Answer

A) True 
 B)False

Exam 15: Equity Portfolio Management Stragtegies

In returns-based style analysis a coefficient of determination of 95% would suggest that

A portfolio manager who uses tactical asset allocation is attempting to create alpha.

Which of the following is not considered a mainstream investment style?

A contrarian investment strategy is based on the belief that

The following are ways to implement index portfolio investing

An advantage of sampling is that portfolio returns will not track the index as closely as with full replication.

Style investing involves constructing portfolios in such a way as to capture one or more of the characteristics of equity securities.

Which of the following is considered a strategy for timing the market and adding value to actively managed portfolios?

Insured asset allocation is a strategy to limit investment losses by shifting funds between an existing equity portfolio and a risk-free security.

____ is a strategy used because the market seems to reward companies that have steady,above average earnings growth,or whose prices are rising because of market optimism.

Growth stocks would have the following characteristics:

In ____ strategy,certain economic sectors or industries are overweighted relative to the benchmark in anticipation of the next phase of the business cycle.

A portfolio management strategy that overweights a particular industry,relative to the benchmark portfolio,based on the next expected phase of the business cycle is called

A Long futures positions in the S&P500 has the effect of ____ portfolio exposure to equities,while short futures positions in the S&P500 has the effect of ____ portfolio exposure to equities.

Growth stocks consistently outperform value stocks.

There is a direct relationship between a passive portfolio's tracking error relative to its index and the time and expense necessary to create and maintain the portfolio.

Which of the following is not considered an active management strategy?

Which of the following statements is false?

Which of the following is not considered an asset allocation strategy?

Sharpe's (1991)study reveals that active managers typically outperform passive managers even after transaction costs and fees.

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

A Long futures positions in the S&P500 has the effect of portfolio exposure to equities,while short futures positions in the S&P500 has the effect of portfolio exposure to equities.