Question 1

Sharpe's performance measure divides the portfolio's risk premium by the

Accepted Answer

A)  standard deviation of the rate of return. 
B)  variance of the rate of return. 
C)  slope of the fund's characteristic line. 
D)  beta. 
E)  risk-free rate. 
A)  standard deviation of the rate of return. 
B)  variance of the rate of return. 
C)  slope of the fund's characteristic line. 
D)  beta. 
E)  risk-free rate. A

Question 2

A manager's superior returns could have occurred due to

Accepted Answer

A)  an insightful asset allocation strategy that over weighted an asset class that earned high returns. 
B)  investing in undervalued sectors. 
C)  selecting individual securities that earned above average returns. 
D)  timing broad market movements. 
E)  All of these are correct. 
A)  an insightful asset allocation strategy that over weighted an asset class that earned high returns. 
B)  investing in undervalued sectors. 
C)  selecting individual securities that earned above average returns. 
D)  timing broad market movements. 
E)  All of these are correct. E

Question 3

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration, RS1U1B1fS1U1B0 = .04.
  
-Refer to Exhibit 18.2. Using the Sharpe Measure, which portfolio performed best?

Accepted Answer

A)  W 
B)  X 
C)  Y 
D)  Z 
E)  Two portfolios are tied. 
A)  W 
B)  X 
C)  Y 
D)  Z 
E)  Two portfolios are tied. C

Question 4

A negative Treynor measure (negative T) for a portfolio always indicates that the portfolio would plot below the SML.

Accepted Answer

A) True 
 B)False

Question 5

A portfolio performance measurement technique that decomposes the return of a manager's holdings to a predetermined benchmark's returns and separates the difference into an allocation and selection is called

Accepted Answer

A)  immunization analysis. 
B)  performance attribution analysis. 
C)  tactical rankings. 
D)  convexity utilization. 
E)  duration matching attrition. 
A)  immunization analysis. 
B)  performance attribution analysis. 
C)  tactical rankings. 
D)  convexity utilization. 
E)  duration matching attrition.

Question 6

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information, evaluate the performance of Tyler Incorporated (TI).
  
-Refer to Exhibit 18.10. Calculate TI's selectivity.

Accepted Answer

A)  0.0113 
B)  0.1200 
C)  0.0687 
D)  0.0530 
E)  0.0696 
A)  0.0113 
B)  0.1200 
C)  0.0687 
D)  0.0530 
E)  0.0696

Question 7

In the Grinblatt-Titman (GT) performance measure,

Accepted Answer

A)  portfolio performance is measured by assessing the quality of services provided by money managers by looking at adjustments made to the content of their portfolios. 
B)  portfolio performance is measured by examining both unsystematic and systematic risk. 
C)  portfolio performance is measured by comparing the returns of each stock in the portfolio to the return of a benchmark portfolio. 
D)  portfolio performance is measured on the basis of return per unit of risk. 
E)  portfolio performance is measured on the basis of historic average differential return per unit of historic variability of differential return. 
A)  portfolio performance is measured by assessing the quality of services provided by money managers by looking at adjustments made to the content of their portfolios. 
B)  portfolio performance is measured by examining both unsystematic and systematic risk. 
C)  portfolio performance is measured by comparing the returns of each stock in the portfolio to the return of a benchmark portfolio. 
D)  portfolio performance is measured on the basis of return per unit of risk. 
E)  portfolio performance is measured on the basis of historic average differential return per unit of historic variability of differential return.

Question 8

The Sharpe and Treynor measures always give different rankings.

Accepted Answer

A) True 
 B)False

Question 9

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.
  
-Refer to Exhibit 18.5. Compute the Jensen Measure for the YYY fund.

Accepted Answer

A)  6.98 
B)  2.35 
C)  2.53 
D)  3.86 
E)  1.72 
A)  6.98 
B)  2.35 
C)  2.53 
D)  3.86 
E)  1.72

Question 10

In evaluating bond performance, the Barclays Aggregate Bond Index is an appropriate risk measure.

Accepted Answer

A) True 
 B)False

Question 11

Duration is considered a good measure of risk for a bond portfolio because it indicates the relative volatility of the bond or portfolio due to interest rate changes and the rating of the bonds.

Accepted Answer

A) True 
 B)False

Question 12

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The last year's performance for four mutual funds is presented below. The market return was 10.70 percent, the standard deviation was 13.1 percent last year, and the risk-free rate of return was 5%.
  
-Refer to Exhibit 18.7. Based on the Sharpe Measure, which portfolio preformed best?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
E)  market 
A)  A 
B)  B 
C)  C 
D)  D 
E)  market

Question 13

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The portfolios identified below are being considered for investment. During the period under consideration, RS1U1B1fS1U1B0 = .03.
  
-Refer to Exhibit 18.1. According to the Treynor Measure, which portfolio performed best?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
E)  Two portfolios are tied 
A)  A 
B)  B 
C)  C 
D)  D 
E)  Two portfolios are tied

Question 14

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration, RS1U1B1fS1U1B0 = .04.
  
-Refer to Exhibit 18.2. According to the Treynor Measure, which portfolio performed best?

Accepted Answer

A)  W 
B)  X 
C)  Y 
D)  Z 
E)  Two portfolios are tied. 
A)  W 
B)  X 
C)  Y 
D)  Z 
E)  Two portfolios are tied.

Question 15

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 18.11. Which of the following statements is TRUE?

Accepted Answer

A)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of bonds and into stocks. 
B)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of stocks and into bonds. 
C)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of bonds and into stocks. 
D)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of stocks and into bonds. 
E)  None of these are correct. 
A)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of bonds and into stocks. 
B)  The portfolio manager earned an extra 0.3% because of a shift in allocation out of stocks and into bonds. 
C)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of bonds and into stocks. 
D)  The portfolio manager earned an extra 6.5% because of a shift in allocation out of stocks and into bonds. 
E)  None of these are correct.

Question 16

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
  
-Refer to Exhibit 18.9. Calculate CI's risk.

Accepted Answer

A)  0.1225 
B)  0.1000 
C)  0.0525 
D)  0.0475 
E)  0.0325 
A)  0.1225 
B)  0.1000 
C)  0.0525 
D)  0.0475 
E)  0.0325

Question 17

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the data presented below on three mutual funds and the market.
  
-Refer to Exhibit 18.3. Compute the Jensen Measure for the BBB fund.

Accepted Answer

A)  4.49 
B)  2.74 
C)  4.25 
D)  5.55 
E)  8.99 
A)  4.49 
B)  2.74 
C)  4.25 
D)  5.55 
E)  8.99

Question 18

Suppose the expected return for the market portfolio and risk-free rate are 13 percent and 3 percent respectively. Stocks A, B, and C have Treynor measures of 0.24, 0.16, and 0.11, respectively. Based on this information, an investor should

Accepted Answer

A)  buy stocks A, B, and C. 
B)  buy stocks A and B and sell stock C. 
C)  buy stock A and sell stocks B and C. 
D)  sell stocks A, B, and C. 
E)  hold stocks A, B, and C. 
A)  buy stocks A, B, and C. 
B)  buy stocks A and B and sell stock C. 
C)  buy stock A and sell stocks B and C. 
D)  sell stocks A, B, and C. 
E)  hold stocks A, B, and C.

Question 19

Which measure of portfolio performance allows analysts to determine the statistical significance of abnormal returns?

Accepted Answer

A)  Sharpe measure 
B)  Jensen measure 
C)  Fama measure 
D)  Alternative components model (MCV) 
E)  Treynor measure 
A)  Sharpe measure 
B)  Jensen measure 
C)  Fama measure 
D)  Alternative components model (MCV) 
E)  Treynor measure

Question 20

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the data presented below on three mutual funds and the market.
  
-Refer to Exhibit 18.3. Compute the Sharpe Measure for the AAA fund.

Accepted Answer

A)  4.49 
B)  2.74 
C)  1.57 
D)  1.70 
E)  1.27 
A)  4.49 
B)  2.74 
C)  1.57 
D)  1.70 
E)  1.27

Exam 18: Evaluation of Portfolio Performance

Sharpe's performance measure divides the portfolio's risk premium by the

A manager's superior returns could have occurred due to

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. Assume that during the period under consideration, Rf = .04. -Refer to Exhibit 18.2. Using the Sharpe Measure, which portfolio performed best?

A negative Treynor measure (negative T) for a portfolio always indicates that the portfolio would plot below the SML.

A portfolio performance measurement technique that decomposes the return of a manager's holdings to a predetermined benchmark's returns and separates the difference into an allocation and selection is called

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Given the following information, evaluate the performance of Tyler Incorporated (TI). -Refer to Exhibit 18.10. Calculate TI's selectivity.

In the Grinblatt-Titman (GT) performance measure,

The Sharpe and Treynor measures always give different rankings.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The data presented below has been collected at this point in time. -Refer to Exhibit 18.5. Compute the Jensen Measure for the YYY fund.

In evaluating bond performance, the Barclays Aggregate Bond Index is an appropriate risk measure.

Duration is considered a good measure of risk for a bond portfolio because it indicates the relative volatility of the bond or portfolio due to interest rate changes and the rating of the bonds.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. During the period under consideration, Rf = .03. -Refer to Exhibit 18.1. According to the Treynor Measure, which portfolio performed best?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. Assume that during the period under consideration, Rf = .04. -Refer to Exhibit 18.2. According to the Treynor Measure, which portfolio performed best?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 18.11. Which of the following statements is TRUE?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Given the following information evaluate the performance of Cloud Incorporated (CI). -Refer to Exhibit 18.9. Calculate CI's risk.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the data presented below on three mutual funds and the market. -Refer to Exhibit 18.3. Compute the Jensen Measure for the BBB fund.

Suppose the expected return for the market portfolio and risk-free rate are 13 percent and 3 percent respectively. Stocks A, B, and C have Treynor measures of 0.24, 0.16, and 0.11, respectively. Based on this information, an investor should

Which measure of portfolio performance allows analysts to determine the statistical significance of abnormal returns?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the data presented below on three mutual funds and the market. -Refer to Exhibit 18.3. Compute the Sharpe Measure for the AAA fund.

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

Equity Portfolio Management Strategies

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

Filters

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. Assume that during the period under consideration, R_f = .04. -Refer to Exhibit 18.2. Using the Sharpe Measure, which portfolio performed best?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. During the period under consideration, R_f = .03. -Refer to Exhibit 18.1. According to the Treynor Measure, which portfolio performed best?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. Assume that during the period under consideration, R_f = .04. -Refer to Exhibit 18.2. According to the Treynor Measure, which portfolio performed best?