Question 1

The ____________ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure.

Accepted Answer

A) Black-Litterman 
B) Treynor-Black 
C) Treynor-Mazuy 
D) Black-Scholes 
E) none of the above. 
A) Black-Litterman 
B) Treynor-Black 
C) Treynor-Mazuy 
D) Black-Scholes 
E) none of the above.

Question 2

The critical variable in the determination of the success of the active portfolio is ________.

Accepted Answer

A) alpha/systematic risk 
B) alpha/nonsystematic risk 
C) gamma/systematic risk 
D) gamma/nonsystematic risk 
E) none of the above 
A) alpha/systematic risk 
B) alpha/nonsystematic risk 
C) gamma/systematic risk 
D) gamma/nonsystematic risk 
E) none of the above

Question 3

Consider the Treynor-Black model.The alpha of an active portfolio is 1%.The expected return on the market index is 16%.The variance of the return on the market portfolio is 4%.The nonsystematic variance of the active portfolio is 1%.The risk-free rate of return is 8%.The beta of the active portfolio is 1.05.The optimal proportion to invest in the active portfolio is __________.

Accepted Answer

A) 48.7% 
B) 50.0% 
C) 51.3% 
D) 100.0% 
E) none of the above 
A) 48.7% 
B) 50.0% 
C) 51.3% 
D) 100.0% 
E) none of the above

Question 4

The beta of an active portfolio is 1.45.The standard deviation of the returns on the market index is 22%.The nonsystematic variance of the active portfolio is 3%.The standard deviation of the returns on the active portfolio is __________.

Accepted Answer

A) 36.30% 
B) 5.84% 
C) 19.60% 
D) 24.17% 
E) 26.0% 
A) 36.30% 
B) 5.84% 
C) 19.60% 
D) 24.17% 
E) 26.0%

Question 5

Consider the Treynor-Black model.The alpha of an active portfolio is 3%.The expected return on the market index is 10%.The variance of the return on the market portfolio is 4%.The nonsystematic variance of the active portfolio is 2%.The risk-free rate of return is 3%.The beta of the active portfolio is 1.15.The optimal proportion to invest in the active portfolio is __________.

Accepted Answer

A) 48.7% 
B) 98.3% 
C) 51.3% 
D) 100.0% 
E) none of the above 
A) 48.7% 
B) 98.3% 
C) 51.3% 
D) 100.0% 
E) none of the above

Question 6

Passive portfolio management consists of __________.

Accepted Answer

A) market timing 
B) security analysis 
C) indexing 
D) A and B 
E) none of the above 
A) market timing 
B) security analysis 
C) indexing 
D) A and B 
E) none of the above

Question 7

Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality.When alpha forecasts are ____________ to account for forecast imprecision,the resulting portfolio position becomes ____________.

Accepted Answer

A) shrunk, shrunk, far less moderate 
B) shrunk, shrunk, far more moderate 
C) grossed up, grossed up, far less moderate 
D) grossed up, grossed up, far more moderate 
E) none of the above 
A) shrunk, shrunk, far less moderate 
B) shrunk, shrunk, far more moderate 
C) grossed up, grossed up, far less moderate 
D) grossed up, grossed up, far more moderate 
E) none of the above

Question 8

Kane,Marcus,and Trippi (1999)show that the annualized fee that investors should be willing to pay for active management,over and above the fee charged by a passive index fund,depends on
I.the investor's coefficient of risk aversion
II.the value of at-the-money call option on the market portfolio
III.the value of out-of-the-money call option on the market portfolio
IV.the precision of the security analyst
V.the distribution of the squared information ratio of in the universe of securities

Accepted Answer

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

Question 9

Consider the Treynor-Black model.The alpha of an active portfolio is 1%.The expected return on the market index is 11%.The variance of return on the market portfolio is 6%.The nonsystematic variance of the active portfolio is 2%.The risk-free rate of return is 4%.The beta of the active portfolio is 1.1.The optimal proportion to invest in the active portfolio is __________.

Accepted Answer

A) 45% 
B) 25% 
C) 50% 
D) 100% 
E) none of the above 
A) 45% 
B) 25% 
C) 50% 
D) 100% 
E) none of the above

The ____________ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure.

The critical variable in the determination of the success of the active portfolio is ________.

The beta of an active portfolio is 1.45.The standard deviation of the returns on the market index is 22%.The nonsystematic variance of the active portfolio is 3%.The standard deviation of the returns on the active portfolio is __________.

Passive portfolio management consists of __________.

Alpha forecasts must be to account for less-than-perfect forecasting quality.When alpha forecasts are to account for forecast imprecision,the resulting portfolio position becomes .

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the CFA Institute Appendices

Filters

Exam 27: The Theory of Active Portfolio Management

The ____________ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure.

The critical variable in the determination of the success of the active portfolio is ________.

The beta of an active portfolio is 1.45.The standard deviation of the returns on the market index is 22%.The nonsystematic variance of the active portfolio is 3%.The standard deviation of the returns on the active portfolio is __________.

Passive portfolio management consists of __________.

Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality.When alpha forecasts are ____________ to account for forecast imprecision,the resulting portfolio position becomes ____________.

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the CFA Institute Appendices

Filters

Alpha forecasts must be to account for less-than-perfect forecasting quality.When alpha forecasts are to account for forecast imprecision,the resulting portfolio position becomes .