Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements concerning performance measures is false?

Accepted Answer

A)  The Sharpe measure examines both unsystematic and systematic risk. 
B)  The Treynor measure examines systematic risk. 
C)  The Jensen measure examines systematic risk. 
D)  All three measures examine both unsystematic and systematic risk. 
E)  None of the above (that is, all statements are true) 
A)  The Sharpe measure examines both unsystematic and systematic risk. 
B)  The Treynor measure examines systematic risk. 
C)  The Jensen measure examines systematic risk. 
D)  All three measures examine both unsystematic and systematic risk. 
E)  None of the above (that is, all statements are true)

Question 3

Components of overall portfolio performance include

Accepted Answer

A)  Selectivity. 
B)  Manager's risk. 
C)  Security risk. 
D)  Choices a and b. 
E)  Choices a, b, and c. 
A)  Selectivity. 
B)  Manager's risk. 
C)  Security risk. 
D)  Choices a and b. 
E)  Choices a, b, and c.

Question 4

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.

Question 5

Under the performance attribution analysis method, the ____ measures the manager's ability to form specific market segment portfolios that generate superior returns relative to the way in which the comparable market segment is defined in the benchmark portfolio weighted by the manager's actual market segment investment proportions.

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 6

Exhibit 18-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Given the following information evaluate the performance of Tyler Incorporated (TI). $R_{TI} 0.18$  $ \quad $  $ \quad $  $B_{TI}=1.06$    $ \quad $  $ \quad $  $\mathrm{R}_{\mathrm{f}}=0.06$    $ \quad $  $ \quad $  $\mathrm{R}_{\mathrm{m}}=0.11$
-Refer to Exhibit 18-7. Calculate TI's risk.

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 7

The Jensen measure requires that each period's rates of return and risk-free rate be measured, rather than using the long-term averages as in the Treynor and Sharpe measures.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 18-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}
\text { Fund } & \text { Beta } & \begin{array}{c}
\text { Standard } \
\text { Deviation }(\%)
\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \
\hline \mathrm{XXX} & 1.07 & 5.13 & 19 & 6 \
\text { YYY } & 1.02 & 4.28 & 17 & 6 \
\text { ZZZ } & 0.86 & 3.52 & 12 & 6 \
\text { Market } & 1.00 & 3.80 & 13 & 6
\end{array}$
-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 9

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)  None of the above. 
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)  None of the above.

Question 10

Exhibit 18-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}
\text { Fund } & \text { Beta } & \begin{array}{c}
\text { Standard } \
\text { Deviation }(\%)
\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \
\hline \mathrm{XXX} & 1.07 & 5.13 & 19 & 6 \
\text { YYY } & 1.02 & 4.28 & 17 & 6 \
\text { ZZZ } & 0.86 & 3.52 & 12 & 6 \
\text { Market } & 1.00 & 3.80 & 13 & 6
\end{array}$
-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 11

The cost of active management is the coefficient sER 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 12

In the evaluation of bond portfolio performance, the interest rate anticipation 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)  To 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 the above 
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)  To 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 the above

Question 13

Exhibit 18-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}
\text { Fund } & \text { Beta } & \begin{array}{c}
\text { Standard } \
\text { Deviation }(\%)
\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \
\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \
\text { BBB } & 1.00 & 4.04 & 15 & 6 \
\text { CCC } & 0.92 & 3.13 & 11 & 6 \
\text { Market } & 1.00 & 3.75 & 13 & 6
\end{array}$
-Refer to Exhibit 18-4. Compute the Sharpe Measure for the AAA fund.

Accepted Answer

A)  2.01 
B)  2.74 
C)  2.91 
D)  5.43 
E)  1.72 
A)  2.01 
B)  2.74 
C)  2.91 
D)  5.43 
E)  1.72

Question 14

The policy effect is a difference in bond portfolio performance from that of a benchmark index due to a difference in duration.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 18-10
THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
Consider the following information for a portfolio manager $$\begin{array} { | l | c | c | c | c | } 
\hline & \begin{array} { c } 
\text { Policy } \
\text { Weight }
\end{array} & \begin{array} { c } 
\text { Actual } \
\text { Weight }
\end{array} & \begin{array} { c } 
\text { Index } \
\text { Returns }
\end{array} & \begin{array} { c } 
\text { Actual } \
\text { Retums }
\end{array} \
\hline \text { Stacks } & 0.65 & 0.7 & 0.11 & 0.12 \
\hline \text { Bonds } & 0.3 & 0.25 & 0.07 & 0.08 \
\hline \text { Cash } & 0.05 & 0.05 & 0.03 & 0.025 \
\hline
\end{array}$$
-Refer to Exhibit 18-10. Calculate the percentage return that can be attributed to the asset allocation decision.

Accepted Answer

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

Question 16

Exhibit 18-9
THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
Consider the following information for four portfolios, the market and the risk free rate (RFR) $\begin{array}{|l|c|c|c|}
\hline \text { ortfolio } & \text { Return } & \text { Beta } & \text { SD } \
\hline \text { A1 } & 0.15 & 1.25 & 0.182 \
\hline \text { A2 } & 0.1 & 0.9 & 0.223 \
\hline \text { A3 } & 0.12 & 1.1 & 0.138 \
\hline \text { A4 } & 0.08 & 0.8 & 0.125 \
\hline \text { Market } & 0.11 & 1 & 0.2 \
\hline \text { RFR } & 0.03 & 0 & 0 \
\hline
\end{array}$
-Refer to Exhibit 18-9. Calculate the Treynor Measure for each portfolio.

Accepted Answer

A)  A1 = 0.0625, A2 = 0.0778, A3 = 0.0818, A4 = 0.096 
B)  A1 = 0.096, A2 = 0.0778, A3 = 0.0818, A4 = 0.0625 
C)  A1 = 0.096, A2 = 0.0818, A3 = 0.0778, A4 = 0.0625 
D)  A1 = 0.0778, A2 = 0.096, A3 = 0.0818, A4 = 0.0625 
E)  None of the above. 
A)  A1 = 0.0625, A2 = 0.0778, A3 = 0.0818, A4 = 0.096 
B)  A1 = 0.096, A2 = 0.0778, A3 = 0.0818, A4 = 0.0625 
C)  A1 = 0.096, A2 = 0.0818, A3 = 0.0778, A4 = 0.0625 
D)  A1 = 0.0778, A2 = 0.096, A3 = 0.0818, A4 = 0.0625 
E)  None of the above.

Question 17

Exhibit 18-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The portfolios identified below are being considered for investment. During the period under consideration Rf = .03. $\begin{array}{cccc}
\text { Portfolio } & \text { Return } & \text { Beta } & \sigma \
\hline \text { A } & 0.16 & 1.0 & 0.15 \
\text { B } & 0.22 & 1.5 & 0.10 \
\text { C } & 0.11 & 0.6 & 0.08 \
\text { D } & 0.18 & 1.1 & 0.12
\end{array}$
-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 18

A portfolio's gross selectivity is made up of

Accepted Answer

A)  Manager's risk. 
B)  Net selectivity. 
C)  Diversification. 
D)  Choices a and b. 
E)  Choices b and c. 
A)  Manager's risk. 
B)  Net selectivity. 
C)  Diversification. 
D)  Choices a and b. 
E)  Choices b and c.

Question 19

The Sharpe and Treynor measures complement each other and thus both should be used to measure portfolio performance.

Accepted Answer

A) True 
 B)False

Question 20

For a poorly diversified portfolio the appropriate measure of portfolio performance would be

Accepted Answer

A)  The Treynor measure because it evaluates portfolio performance on the basis of return and diversification. 
B)  The Sharpe measure because it evaluates portfolio performance on the basis of return and diversification. 
C)  The Treynor measure because it uses standard deviation as the risk measure. 
D)  The Sharpe measure because it uses beta as the risk measure. 
E)  None of the above. 
A)  The Treynor measure because it evaluates portfolio performance on the basis of return and diversification. 
B)  The Sharpe measure because it evaluates portfolio performance on the basis of return and diversification. 
C)  The Treynor measure because it uses standard deviation as the risk measure. 
D)  The Sharpe measure because it uses beta as the risk measure. 
E)  None of the above.

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

Which of the following statements concerning performance measures is false?

Components of overall portfolio performance include

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

The Jensen measure requires that each period's rates of return and risk-free rate be measured, rather than using the long-term averages as in the Treynor and Sharpe measures.

Excess return portfolio performance measures

The cost of active management is the coefficient sER and it is sometimes referred to as

In the evaluation of bond portfolio performance, the interest rate anticipation effect refers to

The policy effect is a difference in bond portfolio performance from that of a benchmark index due to a difference in duration.

A portfolio's gross selectivity is made up of

The Sharpe and Treynor measures complement each other and thus both should be used to measure portfolio performance.

For a poorly diversified portfolio the appropriate measure of portfolio performance would be

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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Exam 18: Evaluation of Portfolio Performance

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

Which of the following statements concerning performance measures is false?

Components of overall portfolio performance include

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

The Jensen measure requires that each period's rates of return and risk-free rate be measured, rather than using the long-term averages as in the Treynor and Sharpe measures.

Excess return portfolio performance measures

The cost of active management is the coefficient sER and it is sometimes referred to as

In the evaluation of bond portfolio performance, the interest rate anticipation effect refers to

The policy effect is a difference in bond portfolio performance from that of a benchmark index due to a difference in duration.

A portfolio's gross selectivity is made up of

The Sharpe and Treynor measures complement each other and thus both should be used to measure portfolio performance.

For a poorly diversified portfolio the appropriate measure of portfolio performance would be

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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