Question 1

In the evaluation of bond portfolio performance,the interest rate anticipation effect refers to

Accepted Answer

A)  The difference in portfolio duration and index duration. 
B)  The extra return attributable to acquiring bonds that are temporarily mispriced relative to risk. 
C)  Short-run changes in the portfolio during a specific period. 
D)  The differential return from changing duration of the portfolio during a specific period. 
E)  None of the above 
A)  The difference in portfolio duration and index duration. 
B)  The extra return attributable to acquiring bonds that are temporarily mispriced relative to risk. 
C)  Short-run changes in the portfolio during a specific period. 
D)  The differential return from changing duration of the portfolio during a specific period. 
E)  None of the above

Question 2

Exhibit 25.3
Use the Information Below for the Following Problem(S)
Consider the data presented below on three mutual funds and the market.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \
\text { BBB } & 1.05 & 5.0 & 18 & 3 \
\text { CCC } & 0.89 & 8.0 & 20 & 3 \
\text { Market } & 1.00 & 8.0 & 12 & 3
\end{array}$$
-Refer to Exhibit 25.3.Compute the Sharpe Measure for the AAA fund.

Accepted Answer

A)  4.49 
B)  2.74 
C)  1.57 
D)  1.70 
E)  1.27 
A)  4.49 
B)  2.74 
C)  1.57 
D)  1.70 
E)  1.27

Question 3

Exhibit 25.8
Use the Information Below for the Following Problem(S)
 $$\begin{array}{l}
\text { Weights }\
\begin{array} { l l } 
\text { Palic } & \text { Actural } \
\hline 50 \% \text { stacks } & 60 \% \text { stacks } \
50 \% \text { bands } & 4 [ 1 / \text { bands } \
\text { Returns } & \
\text { Index } & \text { Actural } \
\hline \text { 98 stocks } & 9 \% \text { stocks } \
5 \% \text { bonds } & 7 \% \text { bonds }
\end{array}
\end{array}$$
-Refer to Exhibit 25.8.Which of the following statements is true?

Accepted Answer

A)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of bonds and into stocks. 
B)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of stocks and into bonds. 
C)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of bonds and into stocks. 
D)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of stocks and into bonds. 
E)  None of the above is a true statement. 
A)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of bonds and into stocks. 
B)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of stocks and into bonds. 
C)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of bonds and into stocks. 
D)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of stocks and into bonds. 
E)  None of the above is a true statement.

Question 4

Which of the following statements concerning performance measures is false?

Accepted Answer

A)  The Sharpe measure examines both unsystematic and systematic risk. 
B)  The Treynor measure examines systematic risk. 
C)  The Jensen measure examines systematic risk. 
D)  All three measures examine both unsystematic and systematic risk. 
E)  None of the above (that is, all statements are true) 
A)  The Sharpe measure examines both unsystematic and systematic risk. 
B)  The Treynor measure examines systematic risk. 
C)  The Jensen measure examines systematic risk. 
D)  All three measures examine both unsystematic and systematic risk. 
E)  None of the above (that is, all statements are true)

Question 5

A test of bond performance over time indicated that bond portfolio managers are more consistent over time than equity managers.

Accepted Answer

A) True 
 B)False

Question 6

Excess return portfolio performance measures

Accepted Answer

A)  Adjust portfolio risk to match benchmark risk. 
B)  Compare portfolio returns to expected returns under CAPM. 
C)  Evaluate portfolio performance on the basis of return per unit of risk. 
D)  Indicate historic average differential return per unit of historic variability of differential return. 
E)  None of the above. 
A)  Adjust portfolio risk to match benchmark risk. 
B)  Compare portfolio returns to expected returns under CAPM. 
C)  Evaluate portfolio performance on the basis of return per unit of risk. 
D)  Indicate historic average differential return per unit of historic variability of differential return. 
E)  None of the above.

Question 7

Exhibit 25.12
Use the Information Below for the Following Problem(S)
An analyst is considering investing in funds A, B, C, and D. The market portfolio, M, is expected to be 11% next period and the risk-free rate of return is 3%. The market portfolio had a standard deviation over the past ten years of 0.20. The analyst gathered the following information on the four funds.
 $$\begin{array} { c c c c } 
\text { Atack } & \text { Return } & \text { Eetr } & \text { Б } \
\hline \text { A } & 17 \% & 1.7 & .21 \
B & 20 \% & 2.1 & .25 \
\text { C } & 10 \% & 0.9 & .12 \
D & 15 \% & 1.2 & 16
\end{array}$$
-Refer to Exhibit 25.12.Compute the Jensen Measure for the C fund.

Accepted Answer

A)  0.16% 
B)  1.80% 
C)  7.20% 
D)  9.00% 
E)  9.13% 
A)  0.16% 
B)  1.80% 
C)  7.20% 
D)  9.00% 
E)  9.13%

Question 8

The market rewards investors for bearing total risk.

Accepted Answer

A) True 
 B)False

Question 9

The measure of performance which divides the portfolio's risk premium by the portfolio's beta is the

Accepted Answer

A)  Sharpe measure. 
B)  Jensen measure. 
C)  Fama measure. 
D)  Alternative components model (MCV). 
E)  Treynor measure. 
A)  Sharpe measure. 
B)  Jensen measure. 
C)  Fama measure. 
D)  Alternative components model (MCV). 
E)  Treynor measure.

Question 10

Under the performance attribution analysis method,the ____ measures the manager's decision to over- or underweight a particular market segment in terms of that segment's return performance relative to the overall return to the benchmark.

Accepted Answer

A)  Selection effect 
B)  Allocation effect 
C)  Distribution effect 
D)  Diversification effect 
E)  Attribution effect 
A)  Selection effect 
B)  Allocation effect 
C)  Distribution effect 
D)  Diversification effect 
E)  Attribution effect

Question 11

Exhibit 25.6
Use the Information Below for the Following Problem(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
 $$\mathrm { R } _ { \mathrm { CI } } = 0.17 \quad \mathrm {~B} _ { \mathrm { GI } } = 1.05 \quad \mathrm { R } _ { \mathrm { I } } = 0.07 \quad \mathrm { R } _ { \mathrm { m } } = 0.12$$
-Refer to Exhibit 25.6.Calculate CI's selectivity.

Accepted Answer

A)  0.1225 
B)  0.1000 
C)  0.0525 
D)  0.0475 
E)  0.0325 
A)  0.1225 
B)  0.1000 
C)  0.0525 
D)  0.0475 
E)  0.0325

Question 12

Exhibit 25.11
Use the Information Below for the Following Problem(S)
The last year's performance for four mutual funds is presented below. The market return was 10.70%, last year with a standard deviation of 13.1% and the risk-free rate of return was 5%.
 $\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Standard }\
\begin{array}{cccc}
\text { Fund } & \text { Beta } & \text { Deviation }(\%) & \text { Retwun }(\%) \
\hline \mathrm{A} & 1.50 & 18.95 & 12.5 \
\mathrm{~B} & 1.20 & 12.41 & 13.0 \
\text { C } & 0.90 & 9.30 & 11.2 \
\mathrm{D} & 050 & 810 & 95
\end{array}
\end{array}$
-Refer to Exhibit 25.11.Compute the Sharpe Measure for the A fund.

Accepted Answer

A)  0.012 
B)  0.040 
C)  0.069 
D)  0.396 
E)  1.142 
A)  0.012 
B)  0.040 
C)  0.069 
D)  0.396 
E)  1.142

Question 13

Exhibit 25.9
Use the Information Below for the Following Problem(S)
Consider the following information for four portfolios, the market and the risk free rate (RFR):
 $$\begin{array} { l l l l } 
\text { Partidio } & \text { Return } & \text { Eet. } & \text { ED } \
\hline \text { A1 } & 0.15 & 1.25 & 0.182 \
\text { A2 } & 0.1 & 0.9 & 0.223 \
\text { A3 } & 0.12 & 1.1 & 0.138 \
\text { A4 } & 0.08 & 0.8 & 0.125 \
\text { Market } & 0.11 & 1 & 0.2 \
\text { RFR } & 0.03 & 0 & 0
\end{array}$$
-Refer to Exhibit 25.9.Calculate the Sharpe Measure for each portfolio.

Accepted Answer

A)  A1 = 0.40, A2 = 0.31, A3 = 0.65, A4 = 0.66 
B)  A1 = 0.31, A2 = 0.66, A3 = 0.65, A4 = 0.40 
C)  A1 = 0.66, A2 = 0.65, A3 = 0.31, A4 = 0.40 
D)  A1 = 0.66, A2 = 0.31, A3 = 0.65, A4 = 0.40 
E)  None of the above 
A)  A1 = 0.40, A2 = 0.31, A3 = 0.65, A4 = 0.66 
B)  A1 = 0.31, A2 = 0.66, A3 = 0.65, A4 = 0.40 
C)  A1 = 0.66, A2 = 0.65, A3 = 0.31, A4 = 0.40 
D)  A1 = 0.66, A2 = 0.31, A3 = 0.65, A4 = 0.40 
E)  None of the above

Question 14

Exhibit 25.10
Use the Information Below for the Following Problem(S)
Consider the following information for a portfolio manager:
 $$\begin{array} { l c c c c } 
& \text { Policy } & \text { Actuial } & \text { Index } & \text { Astual } \
& \text { Weieht } & \text { Weieht } & \text { Returns } & \text { Returns } \
\hline \text { Stacks } & 0.65 & 0.7 & 0.11 & 0.12 \
\text { Bonds } & 0.3 & 0.25 & 0.07 & 0.08 \
\text { Cash } & 0.05 & 0.05 & 0.03 & 0.025
\end{array}$$
-Refer to Exhibit 25.10.Calculate the percentage return that can be attributed to the asset allocation decision.

Accepted Answer

A)  0.105% 
B)  0.925% 
C)  0.20% 
D)  0.96% 
E)  0.94% 
A)  0.105% 
B)  0.925% 
C)  0.20% 
D)  0.96% 
E)  0.94%

Question 15

An appropriate composite risk measure that indicates the relative price volatility for a bond compared to interest rate changes is the bond's yield to maturity.

Accepted Answer

A) True 
 B)False

Question 16

Treynor developed the first composite measure of portfolio performance by introducing the capital market line,which defines the relationship between the return of a portfolio over time and the return for the market portfolio.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 25.5
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l c c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { XOX } & 1.07 & 5.13 & 19 & 6 \
\text { YYY } & 1.02 & 4.28 & 17 & 6 \
\text { ZZZ } & 0.86 & 3.52 & 12 & 6
\end{array}$$
-Refer to Exhibit 25.5.Compute the Jensen Measure for the YYY fund.

Accepted Answer

A)  6.98 
B)  2.35 
C)  2.53 
D)  3.86 
E)  1.72 
A)  6.98 
B)  2.35 
C)  2.53 
D)  3.86 
E)  1.72

Question 18

Attribution analysis separates a portfolio manager's performance into an allocation effect and selection effect.

Accepted Answer

A) True 
 B)False

Question 19

A portfolio manager should be evaluated many times and in a variety of market environments before a final judgment is reached regarding his/her strengths and weaknesses.

Accepted Answer

A) True 
 B)False

Question 20

Exhibit 25.10
Use the Information Below for the Following Problem(S)
Consider the following information for a portfolio manager:
 $$\begin{array} { l c c c c } 
& \text { Policy } & \text { Actuial } & \text { Index } & \text { Astual } \
& \text { Weieht } & \text { Weieht } & \text { Returns } & \text { Returns } \
\hline \text { Stacks } & 0.65 & 0.7 & 0.11 & 0.12 \
\text { Bonds } & 0.3 & 0.25 & 0.07 & 0.08 \
\text { Cash } & 0.05 & 0.05 & 0.03 & 0.025
\end{array}$$
-Refer to Exhibit 25.10.Calculate the percentage return that can be attributed to the security selection decision.

Accepted Answer

A)  0.105% 
B)  0.925% 
C)  0.20% 
D)  0.96% 
E)  0.94% 
A)  0.105% 
B)  0.925% 
C)  0.20% 
D)  0.96% 
E)  0.94%

Exam 25: Evaluation of Portfolio Performance

In the evaluation of bond portfolio performance,the interest rate anticipation effect refers to

Exhibit 25.8 Use the Information Below for the Following Problem(S) Weights Palic Actural 50\% stacks 60\% stacks 50\% bands 4[1/ bands Returns Index Actural 98 stocks 9\% stocks 5\% bonds 7\% bonds -Refer to Exhibit 25.8.Which of the following statements is true?

Which of the following statements concerning performance measures is false?

A test of bond performance over time indicated that bond portfolio managers are more consistent over time than equity managers.

Excess return portfolio performance measures

The market rewards investors for bearing total risk.

The measure of performance which divides the portfolio's risk premium by the portfolio's beta is the

Under the performance attribution analysis method,the ____ measures the manager's decision to over- or underweight a particular market segment in terms of that segment's return performance relative to the overall return to the benchmark.

An appropriate composite risk measure that indicates the relative price volatility for a bond compared to interest rate changes is the bond's yield to maturity.

Treynor developed the first composite measure of portfolio performance by introducing the capital market line,which defines the relationship between the return of a portfolio over time and the return for the market portfolio.

Attribution analysis separates a portfolio manager's performance into an allocation effect and selection effect.

A portfolio manager should be evaluated many times and in a variety of market environments before a final judgment is reached regarding his/her strengths and weaknesses.

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

Equity Portfolio Management Stragtegies

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

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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