Question 1

Jensen's alpha is a risk-adjusted performance measure.

Accepted Answer

A) True 
 B)False  True

Question 2

The purpose of performance attribution is to assess the risk of a portfolio.

Accepted Answer

A) True 
 B)False  False

Question 3

The time-weighted rate of return is affected by any cash flows to the portfolio.

Accepted Answer

A) True 
 B)False  False

Question 4

Sharpe's ratio measures the slope of the line between RF and the portfolio being evaluated.If the line is plotted between RF and a market index,where would superior portfolios lie?Inferior portfolios?

Accepted Answer

Superior portfolios

Question 5

Modigliani-squared is a return adjusted for volatility that allows returns between portfolios to be compared.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is the largest recognized problem with style analysis?

Accepted Answer

A) Funds frequently do not maintain style consistency over time. 
B) Comparing style across funds is nearly impossible. 
C) It is very difficult to determine the style a fund is following. 
D) There are too many alternative means to calculate a fund's style. 
A) Funds frequently do not maintain style consistency over time. 
B) Comparing style across funds is nearly impossible. 
C) It is very difficult to determine the style a fund is following. 
D) There are too many alternative means to calculate a fund's style.

Question 7

The coefficient of determination,also known as R-squared,is used to denote the degree of diversification.

Accepted Answer

A) True 
 B)False

Question 8

Standard deviation,beta,and coefficient of determination are readily available for mutual funds from sources like Morningstar.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about the Sharpe ratio and Treynor ratio is most accurate? The Sharpe ratio is based on:

Accepted Answer

A) total risk,whereas the Treynor ratio is based on systematic risk. 
B) systematic risk,whereas the Treynor ratio is based on total risk. 
C) unsystematic risk,whereas the Treynor ratio is based on systematic risk. 
D) total risk,whereas the Treynor ratio is based on unsystematic risk. 
A) total risk,whereas the Treynor ratio is based on systematic risk. 
B) systematic risk,whereas the Treynor ratio is based on total risk. 
C) unsystematic risk,whereas the Treynor ratio is based on systematic risk. 
D) total risk,whereas the Treynor ratio is based on unsystematic risk.

Question 10

Treynor's measure is a ratio of excess return to systematic risk.

Accepted Answer

A) True 
 B)False

Question 11

The information ratio is calculated as the ratio of:

Accepted Answer

A) mean active return to tracking risk. 
B) alpha to beta. 
C) excess return to portfolio standard deviation. 
D) portfolio excess return to tracking risk. 
A) mean active return to tracking risk. 
B) alpha to beta. 
C) excess return to portfolio standard deviation. 
D) portfolio excess return to tracking risk.

Question 12

Investors who have all their assets in one portfolio of securities should rely on the Sharpe measure rather than the Treynor measure.

Accepted Answer

A) True 
 B)False

Question 13

The information in the following table is to be used to answer questions .
 $\begin{array}{|l|c|c|c|c|}
\hline \text { Fund } & \begin{array}{c}
\text { Standard } \
\text { Deviation }
\end{array} & \text { Beta } & \begin{array}{c}
\text { Jensen's } \
\text { Alpha }
\end{array} & \mathrm{R}^{2} \
\hline \text { Fund 1 } & 1.97 & 1.0 & 1.3 & 0.95 \
\hline \text { Fund 2 } & 2.97 & 0.8 & 0.6^{*} & 0.80 \
\hline \text { Fund 3 } & 3.82 & 1.2 & -3.5^{*} & 0.90 \
\hline \text { Fund 4 } & 3.50 & 1.4 & 4.2 & 0.65 \
\hline
\end{array}$ 
* Significant at the 5 percent level
-Which fund's returns are best explained by the market's returns?

Accepted Answer

A) Fund 1 
B) Fund 2 
C) Fund 3 
D) Fund 4 
A) Fund 1 
B) Fund 2 
C) Fund 3 
D) Fund 4

Question 14

Based on Jensen's measure,superior portfolio performance is exhibited by a:

Accepted Answer

A) statistically significant positive alpha. 
B) statistically significant negative alpha. 
C) zero alpha. 
D) low positive alpha. 
A) statistically significant positive alpha. 
B) statistically significant negative alpha. 
C) zero alpha. 
D) low positive alpha.

Question 15

What is performance attribution?

Accepted Answer

Performance attribution is an attempt to

Question 16

Performance attribution separates return performance into the following two sources:

Accepted Answer

A) security analysis and portfolio management. 
B) money market and capital market securities. 
C) traditional assets and alternative assets. 
D) asset allocation and security selection. 
A) security analysis and portfolio management. 
B) money market and capital market securities. 
C) traditional assets and alternative assets. 
D) asset allocation and security selection.

Question 17

Which of the following represents the alternative portfolio that reflects the objectives of the portfolio under management?

Accepted Answer

A) Market average index 
B) Efficient portfolio 
C) Benchmark portfolio 
D) Performance standard 
A) Market average index 
B) Efficient portfolio 
C) Benchmark portfolio 
D) Performance standard

Question 18

Which organization has issued minimum standards for the reporting of investment performance?

Accepted Answer

A) FINRA 
B) Securities and Exchange Commission (SE
C)  
C) Association for Security Analysts and Portfolio Managers 
D) Chartered Financial Analyst Institute 
A) FINRA 
B) Securities and Exchange Commission (SE
C)  
C) Association for Security Analysts and Portfolio Managers 
D) Chartered Financial Analyst Institute

Question 19

Relative to the Sharpe ratio,the Sortino ratio will make a portfolio's performance look more favorable if the portfolio has experienced:

Accepted Answer

A) fewer extreme negative returns relative to extreme positive returns. 
B) fewer extreme positive returns relative to extreme negative returns. 
C) an equal number of extreme positive and extreme negative returns. 
D) virtually no extreme negative or extreme positive returns. 
A) fewer extreme negative returns relative to extreme positive returns. 
B) fewer extreme positive returns relative to extreme negative returns. 
C) an equal number of extreme positive and extreme negative returns. 
D) virtually no extreme negative or extreme positive returns.

Question 20

Jensen's measure of performance is based on the CAPM.

Accepted Answer

A) True 
 B)False

Exam 22: Evaluation of Investment Performance

Jensen's alpha is a risk-adjusted performance measure.

The purpose of performance attribution is to assess the risk of a portfolio.

The time-weighted rate of return is affected by any cash flows to the portfolio.

Sharpe's ratio measures the slope of the line between RF and the portfolio being evaluated.If the line is plotted between RF and a market index,where would superior portfolios lie?Inferior portfolios?

Modigliani-squared is a return adjusted for volatility that allows returns between portfolios to be compared.

Which of the following is the largest recognized problem with style analysis?

The coefficient of determination,also known as R-squared,is used to denote the degree of diversification.

Standard deviation,beta,and coefficient of determination are readily available for mutual funds from sources like Morningstar.

Which of the following statements about the Sharpe ratio and Treynor ratio is most accurate? The Sharpe ratio is based on:

Treynor's measure is a ratio of excess return to systematic risk.

The information ratio is calculated as the ratio of:

Investors who have all their assets in one portfolio of securities should rely on the Sharpe measure rather than the Treynor measure.

Based on Jensen's measure,superior portfolio performance is exhibited by a:

What is performance attribution?

Performance attribution separates return performance into the following two sources:

Which of the following represents the alternative portfolio that reflects the objectives of the portfolio under management?

Which organization has issued minimum standards for the reporting of investment performance?

Relative to the Sharpe ratio,the Sortino ratio will make a portfolio's performance look more favorable if the portfolio has experienced:

Jensen's measure of performance is based on the CAPM.

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Common Stocks: Analysis and Strategy

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