Question 1

Overall performance is the total return above the risk free rate.

Accepted Answer

A) True 
 B)False

Question 2

The Sharpe and Treynor measures complement each other and thus both should be used to measure portfolio performance.

Accepted Answer

A) True 
 B)False

Question 3

Information ratio 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 4

A portfolio performance measurement technique that decomposes the return of a manager's holdings to a predetermined benchmark's returns and separates the difference into an allocation and selection is called

Accepted Answer

A)  Immunization analysis. 
B)  Performance attribution analysis. 
C)  Tactical rankings. 
D)  Convexity utilization. 
E)  Duration matching attrition. 
A)  Immunization analysis. 
B)  Performance attribution analysis. 
C)  Tactical rankings. 
D)  Convexity utilization. 
E)  Duration matching attrition.

Question 5

A manager's superior returns could have occurred due to:

Accepted Answer

A)  an insightful asset allocation strategy, over weighting an asset class that earned high returns. 
B)  investing in undervalued sectors. 
C)  selecting individual securities that earned above average returns. 
D)  Choices a and c 
E)  All of the above 
A)  an insightful asset allocation strategy, over weighting an asset class that earned high returns. 
B)  investing in undervalued sectors. 
C)  selecting individual securities that earned above average returns. 
D)  Choices a and c 
E)  All of the above

Question 6

Under the performance attribution analysis method,the ____ measures the manager's ability to form specific market segment portfolios that generate superior returns relative to the way in which the comparable market segment is defined in the benchmark portfolio weighted by the manager's actual market segment investment proportions.

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 7

Bailey,Richards,and Tierney maintain that any useful benchmark should have the following characteristics:

Accepted Answer

A)  Measurable. 
B)  Investable. 
C)  Value-weighted. 
D)  a and b. 
E)  a, b and c. 
A)  Measurable. 
B)  Investable. 
C)  Value-weighted. 
D)  a and b. 
E)  a, b and c.

Question 8

In evaluating bond performance,the Lehman Brothers Index is an appropriate risk measure.

Accepted Answer

A) True 
 B)False

Question 9

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 risk.

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 10

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.Rank the four funds and market portfolio in order from highest to lowest based on their Treynor performance measures.

Accepted Answer

A)  A, B, C, D, M 
B)  B, C, M, D, A 
C)  C, A, M, D, B 
D)  D, A, B, M, C 
E)  D, B, A, C, M 
A)  A, B, C, D, M 
B)  B, C, M, D, A 
C)  C, A, M, D, B 
D)  D, A, B, M, C 
E)  D, B, A, C, M

Question 11

For a poorly diversified portfolio the appropriate measure of portfolio performance would be

Accepted Answer

A)  The Treynor measure because it evaluates portfolio performance on the basis of return and diversification. 
B)  The Sharpe measure because it evaluates portfolio performance on the basis of return and diversification. 
C)  The Treynor measure because it uses standard deviation as the risk measure. 
D)  The Sharpe measure because it uses beta as the risk measure. 
E)  None of the above. 
A)  The Treynor measure because it evaluates portfolio performance on the basis of return and diversification. 
B)  The Sharpe measure because it evaluates portfolio performance on the basis of return and diversification. 
C)  The Treynor measure because it uses standard deviation as the risk measure. 
D)  The Sharpe measure because it uses beta as the risk measure. 
E)  None of the above.

Question 12

The Sortino measure differs from the Sharpe ratio in that

Accepted Answer

A)  It measures the portfolio's average return in excess of a user-selected minimum acceptable return threshold. 
B)  It measures the downside risk in a portfolio. 
C)  Higher values of the Sortino measure are not desirable, while higher values in the Sharpe ratio are desirable. 
D)  Both a and b 
E)  All of the above. 
A)  It measures the portfolio's average return in excess of a user-selected minimum acceptable return threshold. 
B)  It measures the downside risk in a portfolio. 
C)  Higher values of the Sortino measure are not desirable, while higher values in the Sharpe ratio are desirable. 
D)  Both a and b 
E)  All of the above.

Question 13

The Sharpe measure examines the risk premium per unit of systematic risk.

Accepted Answer

A) True 
 B)False

Question 14

In the Grinblatt-Titman (GT)performance measure,

Accepted Answer

A)  Portfolio performance is measured by assessing the quality of services provided by money managers by looking at adjustments made to the content of their portfolios. 
B)  Portfolio performance is measured by examining both unsystematic and systematic risk. 
C)  Portfolio performance is measured by comparing the returns of each stock in the portfolio to the return of a benchmark portfolio. With the same aggregate investment characteristics as the security in question. 
D)  Portfolio performance is measured on the basis of return per unit of risk. 
E)  Portfolio performance is measured on the basis of historic average differential return per unit of historic variability of differential return. 
A)  Portfolio performance is measured by assessing the quality of services provided by money managers by looking at adjustments made to the content of their portfolios. 
B)  Portfolio performance is measured by examining both unsystematic and systematic risk. 
C)  Portfolio performance is measured by comparing the returns of each stock in the portfolio to the return of a benchmark portfolio. With the same aggregate investment characteristics as the security in question. 
D)  Portfolio performance is measured on the basis of return per unit of risk. 
E)  Portfolio performance is measured on the basis of historic average differential return per unit of historic variability of differential return.

Question 15

A peer group comparison collects the returns produced by a representative universe of investors over a specific period of time and displays them in a simple boxplot format.

Accepted Answer

A) True 
 B)False

Question 16

A more recent adjustment to the Sharpe measurement for portfolio evaluation is

Accepted Answer

A)  To divide the portfolio risk premium by total risk rather than the portfolio's beta. 
B)  To divide the portfolio risk premium by standard deviation rather than the portfolio's beta. 
C)  To divide the portfolio risk premium by the excess portfolio return rather than total risk. 
D)  To divide the excess portfolio return by the portfolio's standard deviation. 
E)  To divide the excess portfolio return by the portfolio's beta. 
A)  To divide the portfolio risk premium by total risk rather than the portfolio's beta. 
B)  To divide the portfolio risk premium by standard deviation rather than the portfolio's beta. 
C)  To divide the portfolio risk premium by the excess portfolio return rather than total risk. 
D)  To divide the excess portfolio return by the portfolio's standard deviation. 
E)  To divide the excess portfolio return by the portfolio's beta.

Question 17

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)  Sector/security selection hurt the portfolio performance; returns were 1.4% less than if the manager invested the funds in stocks and bond indexes. 
B)  Sector/security selection improved the port-folio performance by 1.4%; each sector return was higher than for index value. 
C)  Sector/security selection hurt the portfolio performance; returns were 6.8% less than if the manager invested the funds in stocks and bond indexes. 
D)  Sector/security selection improved the port-folio performance by 6.8%; each sector return was higher than for index return. 
E)  None of the above is a true statement. 
A)  Sector/security selection hurt the portfolio performance; returns were 1.4% less than if the manager invested the funds in stocks and bond indexes. 
B)  Sector/security selection improved the port-folio performance by 1.4%; each sector return was higher than for index value. 
C)  Sector/security selection hurt the portfolio performance; returns were 6.8% less than if the manager invested the funds in stocks and bond indexes. 
D)  Sector/security selection improved the port-folio performance by 6.8%; each sector return was higher than for index return. 
E)  None of the above is a true statement.

Question 18

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 overall performance.

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 19

Exhibit 25.4
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Deviation(4) } & \text { Return(4) } & \text { Re (46) } \
\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \
\mathrm { BBB } & 1.00 & 4.04 & 15 & 6 \
\text { CCC } & 0.92 & 3.13 & 11 & 6 \
\text { Market } & 1.00 & 375 & 13 & 6
\end{array}$$
-Refer to Exhibit 25.4.Compute the Sharpe Measure for the AAA fund.

Accepted Answer

A)  2.01 
B)  2.74 
C)  2.91 
D)  5.43 
E)  1.72 
A)  2.01 
B)  2.74 
C)  2.91 
D)  5.43 
E)  1.72

Question 20

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 Sharpe Measure for the XXX 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

Exam 25: Evaluation of Portfolio Performance

Overall performance is the total return above the risk free rate.

The Sharpe and Treynor measures complement each other and thus both should be used to measure portfolio performance.

Information ratio portfolio performance measures

A portfolio performance measurement technique that decomposes the return of a manager's holdings to a predetermined benchmark's returns and separates the difference into an allocation and selection is called

A manager's superior returns could have occurred due to:

Bailey,Richards,and Tierney maintain that any useful benchmark should have the following characteristics:

In evaluating bond performance,the Lehman Brothers Index is an appropriate risk measure.

For a poorly diversified portfolio the appropriate measure of portfolio performance would be

The Sortino measure differs from the Sharpe ratio in that

The Sharpe measure examines the risk premium per unit of systematic risk.

In the Grinblatt-Titman (GT)performance measure,

A peer group comparison collects the returns produced by a representative universe of investors over a specific period of time and displays them in a simple boxplot format.

A more recent adjustment to the Sharpe measurement for portfolio evaluation is

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?

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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