Question 1

A growth investor focuses on the current and future economic "story" of a company, with less regard for share valuation.

Accepted Answer

A) True 
 B)False

Question 2

In equity portfolio management, tracking error occurs when

Accepted Answer

A)  the managed portfolio outperforms the benchmark portfolio. 
B)  the managed portfolio under performs the benchmark portfolio. 
C)  the return volatility of the managed portfolio is positively correlated with the return volatility of the benchmark portfolio. 
D)  the return volatility of the managed portfolio is negatively correlated with the return volatility of the benchmark portfolio. 
E)  the return volatility of the managed portfolio is not correlated with the return volatility of the benchmark portfolio. 
A)  the managed portfolio outperforms the benchmark portfolio. 
B)  the managed portfolio under performs the benchmark portfolio. 
C)  the return volatility of the managed portfolio is positively correlated with the return volatility of the benchmark portfolio. 
D)  the return volatility of the managed portfolio is negatively correlated with the return volatility of the benchmark portfolio. 
E)  the return volatility of the managed portfolio is not correlated with the return volatility of the benchmark portfolio.

Question 3

The following is an example of a fundamental active equity portfolio management strategy.

Accepted Answer

A)  contrarian investing 
B)  earnings momentum investing 
C)  low P/E and low P/BV investing 
D)  bottom up investing 
E)  investing on the basis of calendar effects 
A)  contrarian investing 
B)  earnings momentum investing 
C)  low P/E and low P/BV investing 
D)  bottom up investing 
E)  investing on the basis of calendar effects

Question 4

Which of the following is NOT considered an asset allocation strategy?

Accepted Answer

A)  integrated asset allocation 
B)  strategic asset allocation 
C)  tactical asset allocation 
D)  insured asset allocation 
E)  full replication 
A)  integrated asset allocation 
B)  strategic asset allocation 
C)  tactical asset allocation 
D)  insured asset allocation 
E)  full replication

Question 5

An advantage of sampling is that portfolio returns will not track the index as closely as with full replication.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is NOT a technique for constructing a passive index portfolio?

Accepted Answer

A)  full replication 
B)  sampling 
C)  quadratic programming 
D)  linear programming 
E)  indexing 
A)  full replication 
B)  sampling 
C)  quadratic programming 
D)  linear programming 
E)  indexing

Question 7

The goal of active equity management is to earn a return that exceeds the return of a passive benchmark portfolio, net of transaction costs, on a risk-adjusted basis.

Accepted Answer

A) True 
 B)False

Question 8

An active portfolio manager sold $90 million of stocks in a year. If the portfolio had an average value of $110 million in assets under management what is the portfolio turnover ratio?

Accepted Answer

A)  22.2 percent 
B)  81.8 percent 
C)  90.0 percent 
D)  110.0 percent 
E)  122.2 percent 
A)  22.2 percent 
B)  81.8 percent 
C)  90.0 percent 
D)  110.0 percent 
E)  122.2 percent

Question 9

A benchmark portfolio is defined as a passive portfolio whose average characteristics match the client's risk-return objectives.

Accepted Answer

A) True 
 B)False

Question 10

Fund XYZ had a pretax return of 10.2 percent and a tax-adjusted return of 9.5 percent. Calculate Fund XYZ's tax cost ratio.

Accepted Answer

A)  0.006 
B)  0.106 
C)  0.116 
D)  0.342 
E)  0.635 
A)  0.006 
B)  0.106 
C)  0.116 
D)  0.342 
E)  0.635

Question 11

If the annual geometric mean for the equity risk premium is 8.4 percent, what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?

Accepted Answer

A)  7.20 percent 
B)  9.60 percent 
C)  9.70 percent 
D)  10.08 percent 
E)  14.29 percent 
A)  7.20 percent 
B)  9.60 percent 
C)  9.70 percent 
D)  10.08 percent 
E)  14.29 percent

Question 12

The strategy that is used to determine the long-term policy asset weights in a portfolio is called

Accepted Answer

A)  integrated asset allocation. 
B)  tactical asset allocation. 
C)  sector rotation. 
D)  strategic asset allocation. 
E)  insured asset allocation. 
A)  integrated asset allocation. 
B)  tactical asset allocation. 
C)  sector rotation. 
D)  strategic asset allocation. 
E)  insured asset allocation.

Question 13

The difference between the actual and expected return is often called the portfolio's alpha,

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is NOT considered an investment style?

Accepted Answer

A)  value 
B)  growth 
C)  market-oriented 
D)  benchmark 
E)  small-cap 
A)  value 
B)  growth 
C)  market-oriented 
D)  benchmark 
E)  small-cap

Question 15

Growth stocks consistently outperform value stocks.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements regarding momentum strategies is TRUE?

Accepted Answer

A)  Price momentum is a fundamental strategy. 
B)  Earnings momentum is a technical strategy. 
C)  Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings. 
D)  The earnings momentum investor will most likely acquire stocks for companies that have positive earnings surprises. 
E)  All of these are correct. 
A)  Price momentum is a fundamental strategy. 
B)  Earnings momentum is a technical strategy. 
C)  Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings. 
D)  The earnings momentum investor will most likely acquire stocks for companies that have positive earnings surprises. 
E)  All of these are correct.

Question 17

Which of the following is considered a passive management strategy?

Accepted Answer

A)  sector rotation 
B)  use of factor models 
C)  quantitative screens 
D)  sampling 
E)  linear programming 
A)  sector rotation 
B)  use of factor models 
C)  quantitative screens 
D)  sampling 
E)  linear programming

Question 18

Which of the following statements concerning active equity portfolio management strategies is true?

Accepted Answer

A)  The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs) on a risk-adjusted basis. 
B)  An actively managed equity portfolio has lower total transaction costs. 
C)  An actively managed equity portfolio has lower risk than the passive benchmark. 
D)  A key to success for an actively managed equity portfolio is to maximize trading activity. 
E)  An actively managed equity portfolio has lower turnover. 
A)  The goal of active equity portfolio management is to earn a portfolio return that exceeds the return of a passive benchmark portfolio (net of transaction costs) on a risk-adjusted basis. 
B)  An actively managed equity portfolio has lower total transaction costs. 
C)  An actively managed equity portfolio has lower risk than the passive benchmark. 
D)  A key to success for an actively managed equity portfolio is to maximize trading activity. 
E)  An actively managed equity portfolio has lower turnover.

Question 19

Active equity portfolio management is a long-term buy-and-hold strategy.

Accepted Answer

A) True 
 B)False

Question 20

Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index.

Accepted Answer

A) True 
 B)False

Exam 11: Equity Portfolio Management Strategies

A growth investor focuses on the current and future economic "story" of a company, with less regard for share valuation.

In equity portfolio management, tracking error occurs when

The following is an example of a fundamental active equity portfolio management strategy.

Which of the following is NOT considered an asset allocation strategy?

An advantage of sampling is that portfolio returns will not track the index as closely as with full replication.

Which of the following is NOT a technique for constructing a passive index portfolio?

The goal of active equity management is to earn a return that exceeds the return of a passive benchmark portfolio, net of transaction costs, on a risk-adjusted basis.

An active portfolio manager sold $90 million of stocks in a year. If the portfolio had an average value of $110 million in assets under management what is the portfolio turnover ratio?

A benchmark portfolio is defined as a passive portfolio whose average characteristics match the client's risk-return objectives.

Fund XYZ had a pretax return of 10.2 percent and a tax-adjusted return of 9.5 percent. Calculate Fund XYZ's tax cost ratio.

If the annual geometric mean for the equity risk premium is 8.4 percent, what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?

The strategy that is used to determine the long-term policy asset weights in a portfolio is called

The difference between the actual and expected return is often called the portfolio's alpha,

Which of the following is NOT considered an investment style?

Growth stocks consistently outperform value stocks.

Which of the following statements regarding momentum strategies is TRUE?

Which of the following is considered a passive management strategy?

Which of the following statements concerning active equity portfolio management strategies is true?

Active equity portfolio management is a long-term buy-and-hold strategy.

Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters