Question 1

Which of the following are not true regarding the Treynor-Black model?

Accepted Answer

A)  It considers both macroeconomic and microeconomic risks. 
B)  It considers security selection only. 
C)  It is nearly impossible to implement. 
D)  It considers both macroeconomic and microeconomic risks, and it is nearly impossible to implement. 
E)  It considers security selection only, and it is nearly impossible to implement. 
A)  It considers both macroeconomic and microeconomic risks. 
B)  It considers security selection only. 
C)  It is nearly impossible to implement. 
D)  It considers both macroeconomic and microeconomic risks, and it is nearly impossible to implement. 
E)  It considers security selection only, and it is nearly impossible to implement.

Question 2

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 
A)  Black-Litterman 
B)  Treynor-Black 
C)  Treynor-Mazuy 
D)  Black-Scholes

Question 3

Absent research, you should assume the alpha of a stock is

Accepted Answer

A)  zero. 
B)  positive. 
C)  negative. 
D)  not zero. 
E)  zero or positive. 
A)  zero. 
B)  positive. 
C)  negative. 
D)  not zero. 
E)  zero or positive.

Question 4

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, does not depend on
I. the investor's coefficient of risk aversion.
II. the value of the at-the-money call option on the market portfolio.
III. the value of the 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 in the universe of securities.

Accepted Answer

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

Question 5

The beta of an active portfolio is 1.36. The standard deviation of the returns on the market index is 22%. The nonsystematic variance of the active portfolio is 1.2%. The standard deviation of the returns on the active
Portfolio is

Accepted Answer

A)  3.19%. 
B)  31.86%. 
C)  42.00%. 
D)  27.57%. 
E)  2.86%. 
A)  3.19%. 
B)  31.86%. 
C)  42.00%. 
D)  27.57%. 
E)  2.86%.

Question 6

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. 
A)  alpha/systematic risk. 
B)  alpha/nonsystematic risk. 
C)  gamma/systematic risk. 
D)  gamma/nonsystematic risk.

Question 7

Consider the Treynor-Black model. The alpha of an active portfolio is 2%. The expected return on the market index is 12%. 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)  47.6%. 
D)  100.0%. 
A)  48.7%. 
B)  98.3%. 
C)  47.6%. 
D)  100.0%.

Question 8

A purely passive strategy is defined as

Accepted Answer

A)  one that uses only index funds. 
B)  one that allocates assets in fixed proportions that do not vary with market conditions. 
C)  one that is mean-variance efficient. 
D)  one that uses only index funds and allocates assets in fixed proportions that do not vary with market 
E)  All of the options are correct. 
A)  one that uses only index funds. 
B)  one that allocates assets in fixed proportions that do not vary with market conditions. 
C)  one that is mean-variance efficient. 
D)  one that uses only index funds and allocates assets in fixed proportions that do not vary with market 
E)  All of the options are correct.

Which of the following are not true regarding the Treynor-Black model?

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

Absent research, you should assume the alpha of a stock is

The beta of an active portfolio is 1.36. The standard deviation of the returns on the market index is 22%. The nonsystematic variance of the active portfolio is 1.2%. The standard deviation of the returns on the active Portfolio is

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

A purely passive strategy is defined as

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 27: The Theory of Active Portfolio Management

Which of the following are not true regarding the Treynor-Black model?

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

Absent research, you should assume the alpha of a stock is

The beta of an active portfolio is 1.36. The standard deviation of the returns on the market index is 22%. The nonsystematic variance of the active portfolio is 1.2%. The standard deviation of the returns on the active Portfolio is

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

A purely passive strategy is defined as

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the Cfa Institute

Filters