Question 1

An investor focusing on future performance estimation would most likely consider

Accepted Answer

A)  the arithmetic average return. 
B)  the geometric average return. 
C)  the dollar-weighted return. 
D)  all three measures would be equally informative. 
E)  both a and b would be equally informative. 
A)  the arithmetic average return. 
B)  the geometric average return. 
C)  the dollar-weighted return. 
D)  all three measures would be equally informative. 
E)  both a and b would be equally informative.

Question 2

Ideally,clients would like to invest with the portfolio manager who has

Accepted Answer

A)  a moderate personal risk-aversion coefficient. 
B)  a low personal risk-aversion coefficient. 
C)  the highest Sharpe measure. 
D)  the highest record of realized returns. 
E)  the lowest record of standard deviations. 
A)  a moderate personal risk-aversion coefficient. 
B)  a low personal risk-aversion coefficient. 
C)  the highest Sharpe measure. 
D)  the highest record of realized returns. 
E)  the lowest record of standard deviations.

Question 3

You invested $1,000 through your broker three years ago.Your account balance at the beginning of each period is shown in the table below.

Accepted Answer

@#IMG-DLM& 
• Calculate the annual return for each

Question 4

The Sharpe,Treynor,and Jensen portfolio performance measures are derived from the CAPM,

Accepted Answer

A)  therefore,it does not matter which measure is used to evaluate a portfolio manager. 
B)  however,the Sharpe and Treynor measures used different risk measures,therefore the measures vary as to whether or not they are appropriate,depending on the investment scenario. 
C)  therefore,all measure the same portfolio attributes. 
D)  a and b. 
E)  none of these. 
A)  therefore,it does not matter which measure is used to evaluate a portfolio manager. 
B)  however,the Sharpe and Treynor measures used different risk measures,therefore the measures vary as to whether or not they are appropriate,depending on the investment scenario. 
C)  therefore,all measure the same portfolio attributes. 
D)  a and b. 
E)  none of these.

Question 5

The __________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Accepted Answer

A)  Sharpe measure 
B)  Treynor measure 
C)  Jensen measure 
D)  appraisal ratio 
E)  none of these 
A)  Sharpe measure 
B)  Treynor measure 
C)  Jensen measure 
D)  appraisal ratio 
E)  none of these

Question 6

Calculate the appraisal ratio 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 7

Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50.At the end of year 1,you receive a $1 dividend,and buy one more share for $72.At the end of year 2,you receive total dividends of $2 (i.e. ,$1 for each share),and sell the shares for $67.20 each.The time-weighted return on your investment is _________.

Accepted Answer

A)  10.00% 
B)  8.78% 
C)  19.71% 
D)  20.36% 
E)  none of these 
A)  10.00% 
B)  8.78% 
C)  19.71% 
D)  20.36% 
E)  none of these

Question 8

What is the problem with using the Sharpe measure for evaluation of an active portfolio management strategy?

Accepted Answer

The Sharpe measure penalizes for portfol

Question 9

If an investor invested $1,000 in 30-day commercial paper on January 1,1927 and rolled over the proceeds into commercial paper every 30 days until December 31,1978,the investor would have earned approximately ___________ at the end of 1978.

Accepted Answer

A)  $3,600 
B)  $67,500 
C)  $3,640,000 
D)  $5,360,000,000 
E)  none of these 
A)  $3,600 
B)  $67,500 
C)  $3,640,000 
D)  $5,360,000,000 
E)  none of these

Question 10

The M-squared measure

Accepted Answer

A)  considers only the return when evaluating mutual funds. 
B)  considers the risk-adjusted return when evaluating mutual funds. 
C)  considers only the total risk when evaluating mutual funds. 
D)  considers only the market risk when evaluating mutual funds. 
E)  none of these. 
A)  considers only the return when evaluating mutual funds. 
B)  considers the risk-adjusted return when evaluating mutual funds. 
C)  considers only the total risk when evaluating mutual funds. 
D)  considers only the market risk when evaluating mutual funds. 
E)  none of these.

Question 11

A manager who uses the mean-variance theory to construct an optimal portfolio will satisfy

Accepted Answer

A)  investors with low risk-aversion coefficients. 
B)  investors with high risk-aversion coefficients. 
C)  investors with moderate risk-aversion coefficients. 
D)  all investors,regardless of their level of risk aversion. 
E)  only clients with whom she has established long-term relationships,because she knows their personal preferences. 
A)  investors with low risk-aversion coefficients. 
B)  investors with high risk-aversion coefficients. 
C)  investors with moderate risk-aversion coefficients. 
D)  all investors,regardless of their level of risk aversion. 
E)  only clients with whom she has established long-term relationships,because she knows their personal preferences.

Question 12

The M2 measure was developed by

Accepted Answer

A)  Merton and Miller. 
B)  Miller and Miller. 
C)  Modigliani and Miller. 
D)  Modigliani and Modigliani. 
E)  the M&M Mars Company. 
A)  Merton and Miller. 
B)  Miller and Miller. 
C)  Modigliani and Miller. 
D)  Modigliani and Modigliani. 
E)  the M&M Mars Company.

Question 13

When you are examining the record of a perfect market timer it is important to realize that

Accepted Answer

A)  the average rate of return is a misleading measure. 
B)  the average excess return is a misleading measure. 
C)  the standard deviation is a misleading measure. 
D)  the coefficient of skewness is a misleading measure. 
E)  he has based most of his decisions on inside information. 
A)  the average rate of return is a misleading measure. 
B)  the average excess return is a misleading measure. 
C)  the standard deviation is a misleading measure. 
D)  the coefficient of skewness is a misleading measure. 
E)  he has based most of his decisions on inside information.

Question 14

The Treynor measure and the Sharpe measure
I.both lead to the same conclusion about whether performance was superior.
II.rank portfolios in the same order.
III.may rank portfolios in a different order.
IV.use alpha differently.

Accepted Answer

A)  I and II 
B)  I and III 
C)  I and IV 
D)  I,II,and IV 
E)  I,III,and IV 
A)  I and II 
B)  I and III 
C)  I and IV 
D)  I,II,and IV 
E)  I,III,and IV

Question 15

Discuss the origins,the use of,and the principle behind the Sharpe measure.

Accepted Answer

The Sharpe measure was designed to evalu

Question 16

The contribution of selection within markets to the Highwater Marx Bros.'s total excess return was _________.

Accepted Answer

A)  -1.80% 
B)  -1.00% 
C)  0.80% 
D)  1.00% 
E)  none of these 
A)  -1.80% 
B)  -1.00% 
C)  0.80% 
D)  1.00% 
E)  none of these

Question 17

A portfolio manager's ranking within a comparison universe may not provide a good measure of performance because

Accepted Answer

A)  portfolio returns may not be calculated in the same way. 
B)  portfolio durations can vary across managers. 
C)  if managers follow a particular style or subgroup,portfolios may not be comparable. 
D)  both b and c. 
E)  all of these. 
A)  portfolio returns may not be calculated in the same way. 
B)  portfolio durations can vary across managers. 
C)  if managers follow a particular style or subgroup,portfolios may not be comparable. 
D)  both b and c. 
E)  all of these.

Question 18

There appears to be a role for a theory of active portfolio management because

Accepted Answer

A)  some portfolio managers have produced sequences of abnormal returns that are difficult to label as lucky outcomes. 
B)  the "noise" in the realized returns is enough to prevent the rejection of the hypothesis that some money managers have outperformed a passive strategy by a statistically small,yet economic,margin. 
C)  some anomalies in realized returns have been persistent enough to suggest that portfolio managers who identified these anomalies in a timely fashion could have outperformed a passive strategy over prolonged periods. 
D)  a and b. 
E)  a,b,and c. 
A)  some portfolio managers have produced sequences of abnormal returns that are difficult to label as lucky outcomes. 
B)  the "noise" in the realized returns is enough to prevent the rejection of the hypothesis that some money managers have outperformed a passive strategy by a statistically small,yet economic,margin. 
C)  some anomalies in realized returns have been persistent enough to suggest that portfolio managers who identified these anomalies in a timely fashion could have outperformed a passive strategy over prolonged periods. 
D)  a and b. 
E)  a,b,and c.

Question 19

The Modigliani M2 measure and the Treynor T2 measure

Accepted Answer

A)  are identical. 
B)  are nearly identical and will rank portfolios the same way. 
C)  are nearly identical but might rank portfolios differently. 
D)  are somewhat different;M2 can be used to rank portfolios but T2 can not. 
E)  are somewhat different;T2 can be used to rank portfolios but M2 can not. 
A)  are identical. 
B)  are nearly identical and will rank portfolios the same way. 
C)  are nearly identical but might rank portfolios differently. 
D)  are somewhat different;M2 can be used to rank portfolios but T2 can not. 
E)  are somewhat different;T2 can be used to rank portfolios but M2 can not.

Question 20

What is the Sharpe 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%

Exam 20: Taxes, Inflation, and Investment Strategy

An investor focusing on future performance estimation would most likely consider

Ideally,clients would like to invest with the portfolio manager who has

You invested $1,000 through your broker three years ago.Your account balance at the beginning of each period is shown in the table below.

The Sharpe,Treynor,and Jensen portfolio performance measures are derived from the CAPM,

The __________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Calculate the appraisal ratio for The Carlyte Group.

What is the problem with using the Sharpe measure for evaluation of an active portfolio management strategy?

If an investor invested $1,000 in 30-day commercial paper on January 1,1927 and rolled over the proceeds into commercial paper every 30 days until December 31,1978,the investor would have earned approximately ___________ at the end of 1978.

The M-squared measure

A manager who uses the mean-variance theory to construct an optimal portfolio will satisfy

The M2 measure was developed by

When you are examining the record of a perfect market timer it is important to realize that

The Treynor measure and the Sharpe measure I.both lead to the same conclusion about whether performance was superior. II.rank portfolios in the same order. III.may rank portfolios in a different order. IV.use alpha differently.

Discuss the origins,the use of,and the principle behind the Sharpe measure.

The contribution of selection within markets to the Highwater Marx Bros.'s total excess return was _________.

A portfolio manager's ranking within a comparison universe may not provide a good measure of performance because

There appears to be a role for a theory of active portfolio management because

The Modigliani M2 measure and the Treynor T2 measure

What is the Sharpe measure of performance evaluation for The Carlyte Group?

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

The M² measure was developed by

The Modigliani M² measure and the Treynor T² measure