The following data are available relating to the performance of Seminole Fund and the market portfolio: \[\begin{array} { | l | l | l | } \hline & \text { Seminole } & \text { Market Portfolio } \\ \hline \text { Average Return } & 18 \% & 14 \% \\ \hline \text { Standard Deviation of Returns } & 30 \% & 22 ^ { \circ } \% \\ \hline \text { Beta } & 1.4 & 1.0 \\ \hline \text { Residual standard deviation } & 4.0 \% & 0.0 \% \\ \hline \end{array}\] The risk-free return during the sample period was 6%. -If you wanted to evaluate the Seminole Fund using the M2 measure,what percent of the adjusted portfolio would need to be invested in T-Bills?

A) -36% (borrow) B) 50% C) 8% D) 36% E) 27% A) -36% (borrow) B) 50% C) 8% D) 36% E) 27%

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: \[\begin{array} { | l | l | l | } \hline & \text { Long Horn } & \text { Market Portfolio } \\ \hline \text { Average Return } & 19 \% & 12 \% \\ \hline \text { Standard Deviation of Returns } & 35 \% & 15 \% \\ \hline \text { Beta } & 1.5 & 1.0 \\ \hline \text { Residual standard deviation } & 3.0 \% & 0.0 \% \\ \hline \end{array}\] The risk-free return during the sample period was 6%. -Calculate the information ratio for Long Horn Stock Fund.

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

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: \[\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\ \hline \text { Bonds } & 10 \% & 6 \% \\ \hline \text { Stocks } & 90 \% & 16 \% \\ \hline \end{array}\] The return on a bogey portfolio was 10%, calculated as follows: \[\begin{array} { | l | l | l | } \hline & \text { Weight } & \text { Return } \\ \hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \\ \hline \text { Stocks (S\&P 500 Index) } & 50 \% & 15 \% \\ \hline \end{array}\] -The total excess return on the Aggie managed portfolio was __________.

A) 1% B) 3% C) 4% D) 5% E) none of the above A) 1% B) 3% C) 4% D) 5% E) none of the above

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 5%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index. \[\begin{array} { | l | l | l | l | } \hline & \text { Average Return } & \text { Standard. Deviation } & \text { Beta } \\ \hline \text { Fund A } & 23 \% & 30 \% & 1.3 \\ \hline \text { Fund B } & 20 \% & 19 \% & 1.2 \\ \hline \text { Fund C } & 19 \% & 17 \% & 1.1 \\ \hline \text { S\&P 500 } & 18 \% & 15 \% & 1.0 \\ \hline \end{array}\] The investment with the highest Sharpe measure is __________.

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

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: \[\begin{array} { | l | l | l | } \hline & \text { Monarch } & \text { Market Portfolio } \\ \hline \text { Average Return } & 16 \% & 12 \% \\ \hline \text { Standard Deviation of Returns } & 26 \% & 22 \% \\ \hline \text { Beta } & 1.15 & 1.00 \\ \hline \text { Residual Standard Deviation } & 1 \% & 0 \% \\ \hline \end{array}\] The risk-free return during the sample period was 4%. -Calculate Sharpe's measure of performance for Monarch Stock Fund.

A) 1.00% B) 46.00% C) 44.00% D) 50.00% E) none of the above A) 1.00% B) 46.00% C) 44.00% D) 50.00% E) none of the above

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: \[\begin{array} { | l | l | l | } \hline & \text { Long Horn } & \text { Market Portfolio } \\ \hline \text { Average Return } & 19 \% & 12 \% \\ \hline \text { Standard Deviation of Returns } & 35 \% & 15 \% \\ \hline \text { Beta } & 1.5 & 1.0 \\ \hline \text { Residual standard deviation } & 3.0 \% & 0.0 \% \\ \hline \end{array}\] The risk-free return during the sample period was 6%. -What is the Treynor measure of performance evaluation for Long Horn Stock Fund?

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%

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: \[\begin{array} { | l | l | l | } \hline & \text { Monarch } & \text { Market Portfolio } \\ \hline \text { Average Return } & 16 \% & 12 \% \\ \hline \text { Standard Deviation of Returns } & 26 \% & 22 \% \\ \hline \text { Beta } & 1.15 & 1.00 \\ \hline \text { Residual Standard Deviation } & 1 \% & 0 \% \\ \hline \end{array}\] The risk-free return during the sample period was 4%. -What is the information ratio measure of performance evaluation for Monarch Stock Fund?

A) 1.00% B) 280.00% C) 44.00% D) 50.00% E) none of the above A) 1.00% B) 280.00% C) 44.00% D) 50.00% E) none of the above

Exam 24: Portfolio Performance Evaluation

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.

(Essay)

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Question 61

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

(Multiple Choice)

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Question 62

Suppose the risk-free return is 6%.The beta of a managed portfolio is 1.5,the alpha is 3%,and the average return is 18%.Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio as

(Multiple Choice)

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Question 63

The comparison universe is not __________.

(Multiple Choice)

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Question 64

The following data are available relating to the performance of Seminole Fund and the market portfolio: Seminole Market Portfolio Average Return 18\% 14\% Standard Deviation of Returns 30\% 2\% Beta 1.4 1.0 Residual standard deviation 4.0\% 0.0\% The risk-free return during the sample period was 6%. -If you wanted to evaluate the Seminole Fund using the M² measure,what percent of the adjusted portfolio would need to be invested in T-Bills?

(Multiple Choice)

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Question 65

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: Weight Return Bonds 20\% 5\% Stocks 80\% 0\% The return on a bogey portfolio was 2%, calculated from the following information. Weight Return Bonds (Lehman Brothers Index) 50\% 5\% Stocks (S\&P 500 Index) 50\% -1\% -The contribution of asset allocation across markets to the Razorback Fund's total excess return was __________.

(Multiple Choice)

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Question 66

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. Time Account Balance Annual Return 0 \ 1,000 n.a. 1 \ 1,200 2 \ 1,500 3 \ 1,000 - Calculate the annual return for each year.Show your calculations in the table. - Your broker called to tell you the good news that your average annual return over the three years has been 4%.Where did he get this number? - At first you are confused.It seems as though the broker must be mistaken because you are no better off than when you started investing three years ago.But then you remember something from your favorite Investments class.Suggest an alternate measure for the average return.Calculate this measure and explain to your broker why it is more appropriate. - Explain to your broker when it would make sense to use the 4% result that he initially quoted you.

(Essay)

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Question 67

Suppose two portfolios have the same average return,the same standard deviation of returns,but Aggie Fund has a higher beta than Raider Fund.According to the Treynor measure,the performance of Aggie Fund

(Multiple Choice)

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Question 68

You want to evaluate three mutual funds using the information 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. Average Return Residual Standard Deviation Beta Fund A 20\% 4.00\% 0.8 Fund B 21\% 1.25\% 1.0 Fund C 23\% 1.20\% 1.2 The fund with the highest information ratio measure is __________.

(Multiple Choice)

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Question 69

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: Long Horn Market Portfolio Average Return 19\% 12\% Standard Deviation of Returns 35\% 15\% Beta 1.5 1.0 Residual standard deviation 3.0\% 0.0\% The risk-free return during the sample period was 6%. -Calculate the information ratio for Long Horn Stock Fund.

(Multiple Choice)

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Question 70

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 __________.

(Multiple Choice)

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Question 71

Morningstar's RAR method I.is one of the most widely used performance measures. II.indicates poor performance by placing up to 5 darts next to the fund's name. III.computes fund returns adjusted for loads. IV.computes fund returns adjusted for risk. V.produces ranking results that are the same as those produced with the Sharpe measure.

(Multiple Choice)

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Question 72

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: Weight Return Bonds 10\% 6\% Stocks 90\% 16\% The return on a bogey portfolio was 10%, calculated as follows: Weight Return Bonds (Lehman Brothers Index) 50\% 5\% Stocks (S\&P 500 Index) 50\% 15\% -The total excess return on the Aggie managed portfolio was __________.

(Multiple Choice)

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Question 73

Suppose you own two stocks,A and B.In year 1,stock A earns a 2% return and stock B earns a 9% return.In year 2,stock A earns an 18% return and stock B earns an 11% return.__________ has the higher arithmetic average return.

(Multiple Choice)

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Question 74

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 5%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index. Average Return Standard. Deviation Beta Fund A 23\% 30\% 1.3 Fund B 20\% 19\% 1.2 Fund C 19\% 17\% 1.1 S\&P 500 18\% 15\% 1.0 The investment with the highest Sharpe measure is __________.

(Multiple Choice)

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Question 75

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: Monarch Market Portfolio Average Return 16\% 12\% Standard Deviation of Returns 26\% 22\% Beta 1.15 1.00 Residual Standard Deviation 1\% 0\% The risk-free return during the sample period was 4%. -Calculate Sharpe's measure of performance for Monarch Stock Fund.

(Multiple Choice)

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Question 76

Suppose two portfolios have the same average return,the same standard deviation of returns,but portfolio A has a higher beta than portfolio B.According to the Treynor measure,the performance of portfolio A __________.

(Multiple Choice)

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Question 77

Suppose you purchase one share of the stock of Volatile Engineering Corporation at the beginning of year 1 for $36.At the end of year 1,you receive a $2 dividend,and buy one more share for $30.At the end of year 2,you receive total dividends of $4 (i.e.,$2 for each share),and sell the shares for $36.45 each.The dollar-weighted return on your investment is _______.

(Multiple Choice)

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Question 78

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: Long Horn Market Portfolio Average Return 19\% 12\% Standard Deviation of Returns 35\% 15\% Beta 1.5 1.0 Residual standard deviation 3.0\% 0.0\% The risk-free return during the sample period was 6%. -What is the Treynor measure of performance evaluation for Long Horn Stock Fund?

(Multiple Choice)

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Question 79

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: Monarch Market Portfolio Average Return 16\% 12\% Standard Deviation of Returns 26\% 22\% Beta 1.15 1.00 Residual Standard Deviation 1\% 0\% The risk-free return during the sample period was 4%. -What is the information ratio measure of performance evaluation for Monarch Stock Fund?

(Multiple Choice)

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Question 80

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

Suppose the risk-free return is 6%.The beta of a managed portfolio is 1.5,the alpha is 3%,and the average return is 18%.Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio as

The comparison universe is not __________.

Suppose two portfolios have the same average return,the same standard deviation of returns,but Aggie Fund has a higher beta than Raider Fund.According to the Treynor measure,the performance of Aggie Fund

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 __________.

Suppose you own two stocks,A and B.In year 1,stock A earns a 2% return and stock B earns a 9% return.In year 2,stock A earns an 18% return and stock B earns an 11% return.__________ has the higher arithmetic average return.

Suppose two portfolios have the same average return,the same standard deviation of returns,but portfolio A has a higher beta than portfolio B.According to the Treynor measure,the performance of portfolio A __________.

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

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

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