Question 1

Investors want their portfolio managers to completely diversify their portfolio, that is, eliminate all systematic risk.

Accepted Answer

A) True 
 B)False

Question 2

Treynor's performance measure implicitly assumes a completely diversified portfolio.

Accepted Answer

A) True 
 B)False

Question 3

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 Sharpe Measure for the XXX 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 4

The cost of active management is the coefficient  $\sigma$ER, and it is sometimes referred to as

Accepted Answer

A)  market timing. 
B)  reward for risk. 
C)  excess reward. 
D)  excess risk. 
E)  tracking error. 
A)  market timing. 
B)  reward for risk. 
C)  excess reward. 
D)  excess risk. 
E)  tracking error.

Question 5

A test of bond performance over time indicated that bond portfolio managers are more consistent over time than equity managers.

Accepted Answer

A) True 
 B)False

Question 6

The Sharpe measure examines the risk premium per unit of systematic risk.

Accepted Answer

A) True 
 B)False

Question 7

The Sortino measure differs from the Sharpe ratio in that

Accepted Answer

A)  it measures the portfolio's average return in excess of a user-selected minimum acceptable return threshold. 
B)  it measures the portfolio beta. 
C)  higher values of the Sortino measure are not desirable, while higher values in the Sharpe ratio are desirable. 
D)  it measures standard deviation of total portfolio return. 
E)  it measures portfolio beta relative to the market index proxy. 
A)  it measures the portfolio's average return in excess of a user-selected minimum acceptable return threshold. 
B)  it measures the portfolio beta. 
C)  higher values of the Sortino measure are not desirable, while higher values in the Sharpe ratio are desirable. 
D)  it measures standard deviation of total portfolio return. 
E)  it measures portfolio beta relative to the market index proxy.

Question 8

In the evaluation of bond portfolio performance, the policy effect refers to

Accepted Answer

A)  the difference in portfolio duration and index duration. 
B)  the extra return attributable to acquiring bonds that are temporarily mispriced relative to risk. 
C)  short-run changes in the portfolio during a specific period. 
D)  the differential return from changing duration of the portfolio during a specific period. 
E)  None of these are correct. 
A)  the difference in portfolio duration and index duration. 
B)  the extra return attributable to acquiring bonds that are temporarily mispriced relative to risk. 
C)  short-run changes in the portfolio during a specific period. 
D)  the differential return from changing duration of the portfolio during a specific period. 
E)  None of these are correct.

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 Treynor Measure for the ZZZ 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

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An analyst is considering investing in funds A, B, C, and D. The market portfolio, M, is expected to be 11 percent next period, and the risk-free rate of return is 3 percent. The market portfolio had a standard deviation over the past ten years of 0.20. The analyst gathered the following information on the four funds.
  
-Refer to Exhibit 18.8. Rank the four funds and market portfolio in order from highest to lowest based on their Sharpe measures.

Accepted Answer

A)  A, B, C, D, M 
B)  B, C, M, D, A 
C)  C, A, M, D, B 
D)  D, A, B, M, C 
E)  D, B, A, C, M 
A)  A, B, C, D, M 
B)  B, C, M, D, A 
C)  C, A, M, D, B 
D)  D, A, B, M, C 
E)  D, B, A, C, M

Question 11

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 overall performance.

Accepted Answer

A)  0.0113 
B)  0.1200 
C)  0.0670 
D)  0.0530 
E)  0.0696 
A)  0.0113 
B)  0.1200 
C)  0.0670 
D)  0.0530 
E)  0.0696

Question 12

According to Global Investment Performance Standards (GIPS), time-weighted rates of return must be used.

Accepted Answer

A) True 
 B)False

Question 13

Grinblatt and Titman showed that the manager's security selection ability can be established by how they adjusted portfolio weights.

Accepted Answer

A) True 
 B)False

Question 14

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information for a portfolio manager:
  
-Refer to Exhibit 18.12. Calculate the percentage return that can be attributed to the security selection decision.

Accepted Answer

A)  0.105 percent 
B)  0.925 percent 
C)  0.20 percent 
D)  0.96 percent 
E)  0.94 percent 
A)  0.105 percent 
B)  0.925 percent 
C)  0.20 percent 
D)  0.96 percent 
E)  0.94 percent

Question 15

Under the performance attribution analysis method, the ____ measures the manager's decision to over- or underweight a particular market segment in terms of that segment's return performance relative to the overall return to the benchmark.

Accepted Answer

A)  selection effect 
B)  allocation effect 
C)  distribution effect 
D)  diversification effect 
E)  attribution effect 
A)  selection effect 
B)  allocation effect 
C)  distribution effect 
D)  diversification effect 
E)  attribution effect

Question 16

Maximum drawdown calculates the largest percentage decline in value-from peak to trough-wherever during the horizon that occurs.

Accepted Answer

A) True 
 B)False

Question 17

A portfolio manager has the following sequence of cash flows over a two-year period:   Calculate the portfolio manager's dollar weighted return.

Accepted Answer

A)  13.56 percent 
B)  11.48 percent 
C)  15.50 percent 
D)  8.75 percent 
E)  10.67 percent 
A)  13.56 percent 
B)  11.48 percent 
C)  15.50 percent 
D)  8.75 percent 
E)  10.67 percent

Question 18

Bailey, Richards, and Tierney maintain that any useful benchmark should have the following characteristics:

Accepted Answer

A)  ambiguous. 
B)  investable. 
C)  value-weighted. 
D)  use the median manager from a peer group. 
E)  reflective of past investment opinions. 
A)  ambiguous. 
B)  investable. 
C)  value-weighted. 
D)  use the median manager from a peer group. 
E)  reflective of past investment opinions.

Question 19

A portfolio manager should be evaluated many times and in a variety of market environments before a final judgment is reached regarding his/her strengths and weaknesses.

Accepted Answer

A) True 
 B)False

Question 20

Excess return portfolio performance measures

Accepted Answer

A)  adjust portfolio risk to match benchmark risk. 
B)  compare portfolio returns to expected returns under CAPM. 
C)  evaluate portfolio performance on the basis of return per unit of risk. 
D)  indicate historic average differential return per unit of historic variability of differential return. 
E)  the average market beta per unit of risk. 
A)  adjust portfolio risk to match benchmark risk. 
B)  compare portfolio returns to expected returns under CAPM. 
C)  evaluate portfolio performance on the basis of return per unit of risk. 
D)  indicate historic average differential return per unit of historic variability of differential return. 
E)  the average market beta per unit of risk.

Exam 18: Evaluation of Portfolio Performance

Investors want their portfolio managers to completely diversify their portfolio, that is, eliminate all systematic risk.

Treynor's performance measure implicitly assumes a completely diversified portfolio.

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 Sharpe Measure for the XXX fund.

The cost of active management is the coefficient σ\sigmaσ ER, and it is sometimes referred to as

A test of bond performance over time indicated that bond portfolio managers are more consistent over time than equity managers.

The Sharpe measure examines the risk premium per unit of systematic risk.

The Sortino measure differs from the Sharpe ratio in that

In the evaluation of bond portfolio performance, the policy effect refers to

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 Treynor Measure for the ZZZ fund.

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 overall performance.

According to Global Investment Performance Standards (GIPS), time-weighted rates of return must be used.

Grinblatt and Titman showed that the manager's security selection ability can be established by how they adjusted portfolio weights.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information for a portfolio manager: -Refer to Exhibit 18.12. Calculate the percentage return that can be attributed to the security selection decision.

Under the performance attribution analysis method, the ____ measures the manager's decision to over- or underweight a particular market segment in terms of that segment's return performance relative to the overall return to the benchmark.

Maximum drawdown calculates the largest percentage decline in value-from peak to trough-wherever during the horizon that occurs.

A portfolio manager has the following sequence of cash flows over a two-year period: Calculate the portfolio manager's dollar weighted return.

Bailey, Richards, and Tierney maintain that any useful benchmark should have the following characteristics:

A portfolio manager should be evaluated many times and in a variety of market environments before a final judgment is reached regarding his/her strengths and weaknesses.

Excess return portfolio performance measures

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

The cost of active management is the coefficient $\sigma$ ER, and it is sometimes referred to as