Question 1

The Sharpe measure of portfolio performance divides the portfolio's risk premium by the portfolio's beta.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  Measurable. 
B)  Investable. 
C)  Value-weighted. 
D)  Choices a and b. 
E)  Choices a, b, and c. 
A)  Measurable. 
B)  Investable. 
C)  Value-weighted. 
D)  Choices a and b. 
E)  Choices a, b, and c.

Question 3

The portfolio performance measure that can be most affected by a benchmark error is the Sharpe measure.

Accepted Answer

A) True 
 B)False

Question 4

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 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

Sharpe's performance assumes that all portfolios are completely diversified.

Accepted Answer

A) True 
 B)False

Question 7

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)  Information Ratio 
E)  Treynor measure 
A)  Sharpe measure 
B)  Jensen measure 
C)  Fama measure 
D)  Information Ratio 
E)  Treynor measure

Question 8

Which portfolio measurement uses the mean excess return in the numerator divided by the amount of residual risk that the investor incurred in pursuit of those excess returns?

Accepted Answer

A)  Jensen measure. 
B)  Fama measure. 
C)  Sharpe measure. 
D)  Treynor ratio. 
E)  Information ratio. 
A)  Jensen measure. 
B)  Fama measure. 
C)  Sharpe measure. 
D)  Treynor ratio. 
E)  Information ratio.

Question 9

Exhibit 18-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Consider the data presented below on three mutual funds and the market. $\begin{array}{llccc}
\text { Fund } & \text { Beta } & \begin{array}{c}
\text { Standard } \
\text { Deviation }(\%)
\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \
\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \
\text { BBB } & 1.05 & 5.0 & 18 & 3 \
\text { CCC } & 0.89 & 8.0 & 20 & 3 \
\text { Market } & 1.00 & 8.0 & 12 & 3
\end{array}$
-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

Question 10

The Sharpe and Treynor measures always give different rankings.

Accepted Answer

A) True 
 B)False

Question 11

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 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 12

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. Using the Sharpe 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 13

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 14

Funds with low levels of diversification tend to "beat the market."

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 18-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration Rf = .04. $\begin{array}{cccc}
\text { Portfolio } & \text { Return } & \text { Beta } & \sigma \
\hline \text { W } & 0.18 & 1.8 & 0.06 \
\text { X } & 0.21 & 0.9 & 0.10 \
\text { Y } & 0.13 & 0.7 & 0.03 \
\text { Z } & 0.16 & 1.5 & 0.07
\end{array}$
-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 16

A more recent adjustment to the Sharpe measurement for portfolio evaluation is

Accepted Answer

A)  To divide the portfolio risk premium by total risk rather than the portfolio's beta. 
B)  To divide the portfolio risk premium by standard deviation rather than the portfolio's beta. 
C)  To divide the portfolio risk premium by the excess portfolio return rather than total risk. 
D)  To divide the excess portfolio return by the portfolio's standard deviation. 
E)  To divide the excess portfolio return by the portfolio's beta. 
A)  To divide the portfolio risk premium by total risk rather than the portfolio's beta. 
B)  To divide the portfolio risk premium by standard deviation rather than the portfolio's beta. 
C)  To divide the portfolio risk premium by the excess portfolio return rather than total risk. 
D)  To divide the excess portfolio return by the portfolio's standard deviation. 
E)  To divide the excess portfolio return by the portfolio's beta.

Question 17

Portfolio managers who anticipate an increase in interest rates should

Accepted Answer

A)  Act to keep the duration constant. 
B)  Decrease the portfolio duration. 
C)  Increase the portfolio duration. 
D)  Assume higher risk in the market. 
E)  Invest in junk bonds. 
A)  Act to keep the duration constant. 
B)  Decrease the portfolio duration. 
C)  Increase the portfolio duration. 
D)  Assume higher risk in the market. 
E)  Invest in junk bonds.

Question 18

Exhibit 18-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array}{c}
\text { Weights }\
\begin{array} { c c } 
\text { Palicy } & \text { Actual } \
\hline 50 \% \text { stacks } & 60 \% \text { stacks } \
50 \% \text { bonds } & 40 \% \text { bonds } \
 \quad \quad \quad \quad\text { Retunns } \
\text { Index } & \text { Actual } \
\hline \text { g\% 5tacks } & 9 \% \text { 5tacks } \
5 \% \text { bonds } & 7 \% \text { bonds }
\end{array}
\end{array}$$
-Refer to Exhibit 18-8. 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 the above. 
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 the above.

Question 19

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 Jensen alpha Measure for each portfolio.

Accepted Answer

A)  A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 
B)  A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 
C)  A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 
D)  A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14 
E)  None of the above. 
A)  A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 
B)  A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 
C)  A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 
D)  A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14 
E)  None of the above.

Question 20

Overall performance is the total return above the risk free rate.

Accepted Answer

A) True 
 B)False

The Sharpe measure of portfolio performance divides the portfolio's risk premium by the portfolio's beta.

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

The portfolio performance measure that can be most affected by a benchmark error is the Sharpe measure.

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.

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

Sharpe's performance assumes that all portfolios are completely diversified.

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

Which portfolio measurement uses the mean excess return in the numerator divided by the amount of residual risk that the investor incurred in pursuit of those excess returns?

The Sharpe and Treynor measures always give different rankings.

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

Funds with low levels of diversification tend to "beat the market."

A more recent adjustment to the Sharpe measurement for portfolio evaluation is

Portfolio managers who anticipate an increase in interest rates should

Exhibit 18-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Weights Palicy Actual 50\% stacks 60\% stacks 50\% bonds 40\% bonds Retunns Index Actual g\% 5tacks 9\% 5tacks 5\% bonds 7\% bonds -Refer to Exhibit 18-8. Which of the following statements is true?

Overall performance is the total return above the risk free rate.

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

The Sharpe measure of portfolio performance divides the portfolio's risk premium by the portfolio's beta.

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

The portfolio performance measure that can be most affected by a benchmark error is the Sharpe measure.

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.

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

Sharpe's performance assumes that all portfolios are completely diversified.

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

Which portfolio measurement uses the mean excess return in the numerator divided by the amount of residual risk that the investor incurred in pursuit of those excess returns?

The Sharpe and Treynor measures always give different rankings.

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

Funds with low levels of diversification tend to "beat the market."

A more recent adjustment to the Sharpe measurement for portfolio evaluation is

Portfolio managers who anticipate an increase in interest rates should

Exhibit 18-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Weights Palicy Actual 50\% stacks 60\% stacks 50\% bonds 40\% bonds Retunns Index Actual g\% 5tacks 9\% 5tacks 5\% bonds 7\% bonds -Refer to Exhibit 18-8. Which of the following statements is true?

Overall performance is the total return above the risk free rate.

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

Filters