Question 1

Perfect timing ability is equivalent to having __________ on the market portfolio.

Accepted Answer

A) a call option 
B) a futures contract 
C) a put option 
D) a commodities contract 
A) a call option 
B) a futures contract 
C) a put option 
D) a commodities contract

Question 2

The tracking error of an optimized portfolio can be expressed in terms of the ____________ of the portfolio, and thus reveals ____________.

Accepted Answer

A) return; portfolio performance 
B) total risk; portfolio performance 
C) beta; portfolio performance 
D) beta; benchmark risk 
A) return; portfolio performance 
B) total risk; portfolio performance 
C) beta; portfolio performance 
D) beta; benchmark risk

Question 3

An active portfolio manager faces a trade-off between I) using the Sharpe measure.
II. using mean-variance analysis.
III. exploiting perceived security mispricings.
IV. holding too much of the risk-free asset.
V. letting a few stocks dominate the portfolio.

Accepted Answer

A) I and II 
B) II and V 
C) III and V 
D) III and IV 
A) I and II 
B) II and V 
C) III and V 
D) III and IV

Question 4

One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's

Accepted Answer

A) Sharpe ratio. 
B) information ratio. 
C) alpha. 
D) Treynor measure. 
A) Sharpe ratio. 
B) information ratio. 
C) alpha. 
D) Treynor measure.

Question 5

Active portfolio managers try to construct a risky portfolio with

Accepted Answer

A) a higher Sharpe measure than a passive strategy. 
B) a lower Sharpe measure than a passive strategy. 
C) the same Sharpe measure as a passive strategy. 
D) very few securities. 
A) a higher Sharpe measure than a passive strategy. 
B) a lower Sharpe measure than a passive strategy. 
C) the same Sharpe measure as a passive strategy. 
D) very few securities.

Question 6

If a portfolio manager consistently obtains a high Sharpe measure, the manager's forecasting ability

Accepted Answer

A) is above average. 
B) is average. 
C) is below average. 
D) does not exist. 
A) is above average. 
B) is average. 
C) is below average. 
D) does not exist.

Question 7

The critical variable in the determination of the success of the active portfolio is

Accepted Answer

A) alpha/systematic risk. 
B) alpha/nonsystematic risk. 
C) gamma/systematic risk. 
D) gamma/nonsystematic risk. 
A) alpha/systematic risk. 
B) alpha/nonsystematic risk. 
C) gamma/systematic risk. 
D) gamma/nonsystematic risk.

Question 8

Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality.When alpha forecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________.

Accepted Answer

A) shrunk; shrunk; far less moderate 
B) shrunk; shrunk; far more moderate 
C) grossed up; grossed up; far less moderate 
D) grossed up; grossed up; far more moderate 
A) shrunk; shrunk; far less moderate 
B) shrunk; shrunk; far more moderate 
C) grossed up; grossed up; far less moderate 
D) grossed up; grossed up; far more moderate

Perfect timing ability is equivalent to having __________ on the market portfolio.

The tracking error of an optimized portfolio can be expressed in terms of the of the portfolio, and thus reveals .

An active portfolio manager faces a trade-off between I) using the Sharpe measure. II. using mean-variance analysis. III. exploiting perceived security mispricings. IV. holding too much of the risk-free asset. V. letting a few stocks dominate the portfolio.

One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's

Active portfolio managers try to construct a risky portfolio with

If a portfolio manager consistently obtains a high Sharpe measure, the manager's forecasting ability

The critical variable in the determination of the success of the active portfolio is

Alpha forecasts must be to account for less-than-perfect forecasting quality.When alpha forecasts are to account for forecast imprecision, the resulting portfolio position becomes .

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the Cfa Institute

Filters

Exam 27: The Theory of Active Portfolio Management

Perfect timing ability is equivalent to having __________ on the market portfolio.

The tracking error of an optimized portfolio can be expressed in terms of the ____________ of the portfolio, and thus reveals ____________.

An active portfolio manager faces a trade-off between I) using the Sharpe measure. II. using mean-variance analysis. III. exploiting perceived security mispricings. IV. holding too much of the risk-free asset. V. letting a few stocks dominate the portfolio.

One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's

Active portfolio managers try to construct a risky portfolio with

If a portfolio manager consistently obtains a high Sharpe measure, the manager's forecasting ability

The critical variable in the determination of the success of the active portfolio is

Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality.When alpha forecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________.

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

Investment Policy and the Framework of the Cfa Institute

Filters

The tracking error of an optimized portfolio can be expressed in terms of the of the portfolio, and thus reveals .

Alpha forecasts must be to account for less-than-perfect forecasting quality.When alpha forecasts are to account for forecast imprecision, the resulting portfolio position becomes .