Question 1

Calculate the M2 measure for Goldenlake Investors.

Accepted Answer

A)  4.0% 
B)  20.0% 
C)  2.86% 
D)  0.8% 
E)  40.0% 
A)  4.0% 
B)  20.0% 
C)  2.86% 
D)  0.8% 
E)  40.0%

Question 2

The Value Line Index is an equally weighted geometric average of the returns of about 1,700 firms.The value of an index based on the geometric average returns of 3 stocks where the returns on the 3 stocks during a given period were 32%,5%,and -10%,respectively,is _________.

Accepted Answer

A)  4.3% 
B)  7.6% 
C)  9.0% 
D)  13.4% 
E)  5.0% 
A)  4.3% 
B)  7.6% 
C)  9.0% 
D)  13.4% 
E)  5.0%

Question 3

Calculate the Jensen measure of performance evaluation for The Carlyte Group.

Accepted Answer

A)  1.33% 
B)  4.00% 
C)  8.67% 
D)  31.43% 
E)  37.14% 
A)  1.33% 
B)  4.00% 
C)  8.67% 
D)  31.43% 
E)  37.14%

Question 4

To determine the optimal risky portfolio in the Treynor-Black Model,macroeconomic forecasts are used for the _________ and composite forecasts are used for the _________.

Accepted Answer

A)  passive index portfolio;active portfolio 
B)  active portfolio,passive index portfolio 
C)  expected return;standard deviation 
D)  expected return;beta coefficient 
E)  alpha coefficient;beta coefficient 
A)  passive index portfolio;active portfolio 
B)  active portfolio,passive index portfolio 
C)  expected return;standard deviation 
D)  expected return;beta coefficient 
E)  alpha coefficient;beta coefficient

Question 5

__________ did not develop a popular method for risk-adjusted performance evaluation of mutual funds.

Accepted Answer

A)  Eugene Fama 
B)  Michael Jensen 
C)  William Sharpe 
D)  Jack Treynor 
E)  a and b 
A)  Eugene Fama 
B)  Michael Jensen 
C)  William Sharpe 
D)  Jack Treynor 
E)  a and b

Question 6

If an investor is a perfect market timer,his distribution of monthly portfolio returns will _________.

Accepted Answer

A)  be skewed to the left 
B)  be skewed to the right 
C)  exhibit kurtosis 
D)  exhibit neither skewness nor kurtosis 
E)  none of these 
A)  be skewed to the left 
B)  be skewed to the right 
C)  exhibit kurtosis 
D)  exhibit neither skewness nor kurtosis 
E)  none of these

Question 7

Explain why mean-variance analysis is inadequate for valuing market timing.

Accepted Answer

The mean-variance approach relies on tho

Question 8

Henrikkson (1984)found that,on average,betas of funds __________ during market advances

Accepted Answer

A)  increased very significantly 
B)  increased slightly 
C)  decreased slightly 
D)  decreased very significantly 
E)  did not change 
A)  increased very significantly 
B)  increased slightly 
C)  decreased slightly 
D)  decreased very significantly 
E)  did not change

Question 9

Historically,the average arithmetic return of Parametric Design Company has been 12%.If the returns have been normally distributed with a variance of 6%,the geometric average return on this stock has been _________.

Accepted Answer

A)  4% 
B)  8% 
C)  12% 
D)  9% 
E)  none of these 
A)  4% 
B)  8% 
C)  12% 
D)  9% 
E)  none of these

Question 10

The Jensen portfolio evaluation measure

Accepted Answer

A)  is a measure of return per unit of risk,as measured by standard deviation. 
B)  is an absolute measure of return over and above that predicted by the CAPM. 
C)  is a measure of return per unit of risk,as measured by beta. 
D)  a and b. 
E)  b and c. 
A)  is a measure of return per unit of risk,as measured by standard deviation. 
B)  is an absolute measure of return over and above that predicted by the CAPM. 
C)  is a measure of return per unit of risk,as measured by beta. 
D)  a and b. 
E)  b and c.

Question 11

You want to evaluate three mutual funds using the appraisal ratio measure for performance evaluation.The risk-free return during the sample period is 6%,and the average return on the market portfolio is 19%.The average returns,residual standard deviations,and betas for the three funds are given below. $$\begin{array} { l c c c } 
& \text { Average Return } & \text { Residual Standard Deviation } & \text { Beta } \
\hline  \text { Fund A } & 20 \% & 4.00 \% & 0.8 \
\text { Fund B } & 21 \% & 1.25 \% & 1.0 \
\text { Fund C } & 23 \% & 1.20 \% & 1.2
\end{array}$$
The fund with the highest appraisal ratio measure is _________.

Accepted Answer

A)  Fund A 
B)  Fund B 
C)  Fund C 
D)  Funds A and B are tied for highest 
E)  Funds A and C are tied for highest 
A)  Fund A 
B)  Fund B 
C)  Fund C 
D)  Funds A and B are tied for highest 
E)  Funds A and C are tied for highest

Question 12

The dollar-weighted return on a portfolio is equivalent to

Accepted Answer

A)  the time-weighted return. 
B)  the geometric average return. 
C)  the arithmetic average return. 
D)  the portfolio's internal rate of return. 
E)  none of these. 
A)  the time-weighted return. 
B)  the geometric average return. 
C)  the arithmetic average return. 
D)  the portfolio's internal rate of return. 
E)  none of these.

Question 13

Trading activity by mutual funds just prior to quarterly reporting dates is known as

Accepted Answer

A)  insider trading 
B)  program trading 
C)  passive security selection 
D)  window dressing 
E)  none of these 
A)  insider trading 
B)  program trading 
C)  passive security selection 
D)  window dressing 
E)  none of these

Question 14

Discuss the two major components of active portfolio management,security selection and market timing.How may the investor potentially benefit from such activities?

Accepted Answer

Security selection is the process of ide

Question 15

Sharpe's measure

Accepted Answer

A)  is an assessment of mutual fund performance. 
B)  is a common criterion for tracking the performance of professionally managed portfolios. 
C)  measures excess returns per unit of risk,as measured by beta. 
D)  a and b. 
E)  a,b,and c. 
A)  is an assessment of mutual fund performance. 
B)  is a common criterion for tracking the performance of professionally managed portfolios. 
C)  measures excess returns per unit of risk,as measured by beta. 
D)  a and b. 
E)  a,b,and c.

Question 16

What is the appraisal ratio measure of performance evaluation for Beech Lake Discord Group?

Accepted Answer

A)  1.00% 
B)  8.80% 
C)  44.00% 
D)  50.00% 
E)  none of these 
A)  1.00% 
B)  8.80% 
C)  44.00% 
D)  50.00% 
E)  none of these

Question 17

The Treynor-Black model assumes that

Accepted Answer

A)  the objective of security analysis is to form an active portfolio of a limited number of mispriced securities. 
B)  the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock. 
C)  the optimal weight of a mispriced security in the active portfolio is a function of the degree of mispricing,the market sensitivity of the security,and its degree of nonsystematic risk. 
D)  All of these are true. 
E)  None of these is true. 
A)  the objective of security analysis is to form an active portfolio of a limited number of mispriced securities. 
B)  the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock. 
C)  the optimal weight of a mispriced security in the active portfolio is a function of the degree of mispricing,the market sensitivity of the security,and its degree of nonsystematic risk. 
D)  All of these are true. 
E)  None of these is true.

Question 18

If the Goldenlake Investors is actively managed and will be mixed with the market index portfolio,but you suspect it may be mispriced,calculate the value of the measure that should be used for evaluation.

Accepted Answer

A)  4.0% 
B)  20.0% 
C)  2.86% 
D)  0.8% 
E)  40% 
A)  4.0% 
B)  20.0% 
C)  2.86% 
D)  0.8% 
E)  40%

Question 19

Discuss the M2 measure of performance by answering the following questions.Why is M2 better than the Sharpe measure? What measure of risk does M2 use? How do you construct a managed portfolio,P,to use in computing the M2 measure? What is the formula for M2? Draw a graph that shows how M2 would be measured.Be sure to label the axes and all relevant points.

Accepted Answer

The Sharpe measure indicates whether a p

Question 20

The correct measure of timing ability is __________ for a portfolio manager who correctly forecasts 40% of bull markets and 65% of bear markets.

Accepted Answer

A)  -5% 
B)  5% 
C)  25% 
D)  105% 
E)  none of these 
A)  -5% 
B)  5% 
C)  25% 
D)  105% 
E)  none of these

Exam 20: Taxes, Inflation, and Investment Strategy

Calculate the M2 measure for Goldenlake Investors.

The Value Line Index is an equally weighted geometric average of the returns of about 1,700 firms.The value of an index based on the geometric average returns of 3 stocks where the returns on the 3 stocks during a given period were 32%,5%,and -10%,respectively,is _________.

Calculate the Jensen measure of performance evaluation for The Carlyte Group.

To determine the optimal risky portfolio in the Treynor-Black Model,macroeconomic forecasts are used for the _________ and composite forecasts are used for the _________.

__________ did not develop a popular method for risk-adjusted performance evaluation of mutual funds.

If an investor is a perfect market timer,his distribution of monthly portfolio returns will _________.

Explain why mean-variance analysis is inadequate for valuing market timing.

Henrikkson (1984)found that,on average,betas of funds __________ during market advances

Historically,the average arithmetic return of Parametric Design Company has been 12%.If the returns have been normally distributed with a variance of 6%,the geometric average return on this stock has been _________.

The Jensen portfolio evaluation measure

The dollar-weighted return on a portfolio is equivalent to

Trading activity by mutual funds just prior to quarterly reporting dates is known as

Discuss the two major components of active portfolio management,security selection and market timing.How may the investor potentially benefit from such activities?

Sharpe's measure

What is the appraisal ratio measure of performance evaluation for Beech Lake Discord Group?

The Treynor-Black model assumes that

If the Goldenlake Investors is actively managed and will be mixed with the market index portfolio,but you suspect it may be mispriced,calculate the value of the measure that should be used for evaluation.

The correct measure of timing ability is __________ for a portfolio manager who correctly forecasts 40% of bull markets and 65% of bear markets.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Calculate the M² measure for Goldenlake Investors.

To determine the optimal risky portfolio in the Treynor-Black Model,macroeconomic forecasts are used for the _ and composite forecasts are used for the _.