Question 1

Mutual funds show ____________ evidence of serial correlation, and hedge funds show ____________ evidence of serial correlation.

Accepted Answer

A) almost no; almost no 
B) almost no; substantial 
C) substantial; substantial 
D) substantial; almost no 
A) almost no; almost no 
B) almost no; substantial 
C) substantial; substantial 
D) substantial; almost no B

Question 2

The comparison universe is not

Accepted Answer

A) a concept found only in astronomy. 
B) the set of all mutual funds in the world. 
C) the set of all mutual funds in the U.S. 
D) a set of mutual funds with similar risk characteristics to your mutual fund. 
E) a concept found only in astronomy, the set of all mutual funds in the world, or the set of all mutual funds in the U.S. 
A) a concept found only in astronomy. 
B) the set of all mutual funds in the world. 
C) the set of all mutual funds in the U.S. 
D) a set of mutual funds with similar risk characteristics to your mutual fund. 
E) a concept found only in astronomy, the set of all mutual funds in the world, or the set of all mutual funds in the U.S. E

Question 3

Studies of style analysis have found that ________ of fund returns can be explained by asset allocation alone.

Accepted Answer

A) between 50% and 70% 
B) less than 10% 
C) between 40 and 50% 
D) between 75% and 90% 
E) over 90% 
A) between 50% and 70% 
B) less than 10% 
C) between 40 and 50% 
D) between 75% and 90% 
E) over 90% E

Question 4

The Jensen portfolio evaluation measure

Accepted Answer

A) is a measure of return per unit of risk, as measured by standard deviation. 
B) is an absolute measure of return over and above that predicted by the CAPM. 
C) is a measure of return per unit of risk, as measured by beta. 
D) is a measure of return per unit of risk, as measured by standard deviation, and is an absolute measure of return over and above that predicted by the CAPM. 
A) is a measure of return per unit of risk, as measured by standard deviation. 
B) is an absolute measure of return over and above that predicted by the CAPM. 
C) is a measure of return per unit of risk, as measured by beta. 
D) is a measure of return per unit of risk, as measured by standard deviation, and is an absolute measure of return over and above that predicted by the CAPM.

Question 5

Morningstar's RAR method I) is one of the most widely-used performance measures.
II. indicates poor performance by placing up to 5 darts next to the fund's name.
III. computes fund returns adjusted for loads.
IV. computes fund returns adjusted for risk.
V. produces ranking results that are the same as those produced with the Sharpe measure.

Accepted Answer

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

Question 6

The following data are available relating to the performance of Seminole Fund and the market portfolio:   The risk-free return during the sample period was 6%.
Calculate the M2 measure for the Seminole Fund.

Accepted Answer

A) 4.0% 
B) 20.0% 
C) 2.86% 
D) 0.8% 
A) 4.0% 
B) 20.0% 
C) 2.86% 
D) 0.8%

Question 7

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes:   The return on a bogey portfolio was 10%, calculated as follows:
  The total excess return on the Aggie managed portfolio was

Accepted Answer

A) 1%. 
B) 3%. 
C) 4%. 
D) 5%. 
A) 1%. 
B) 3%. 
C) 4%. 
D) 5%.

Question 8

A portfolio manager's ranking within a comparison universe may not provide a good measure of performance because

Accepted Answer

A) portfolio returns may not be calculated in the same way. 
B) portfolio durations can vary across managers. 
C) if managers follow a particular style or subgroup, portfolios may not be comparable. 
D) portfolio durations can vary across managers and if managers follow a particular style or subgroup, portfolios may not be comparable. 
A) portfolio returns may not be calculated in the same way. 
B) portfolio durations can vary across managers. 
C) if managers follow a particular style or subgroup, portfolios may not be comparable. 
D) portfolio durations can vary across managers and if managers follow a particular style or subgroup, portfolios may not be comparable.

Question 9

Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50.At the end of year 1, you receive a $1 dividend and buy one more share for $72.At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share) and sell the shares for $67.20 each.The dollar-weighted return on your investment is

Accepted Answer

A) 10.00%. 
B) 8.78%. 
C) 19.71%. 
D) 20.36%. 
A) 10.00%. 
B) 8.78%. 
C) 19.71%. 
D) 20.36%.

Question 10

The following data are available relating to the performance of Sooner Stock Fund and the market portfolio:   The risk-free return during the sample period was 3%.
Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.

Accepted Answer

A) 2.6% 
B) 4.00% 
C) 8.67% 
D) 31.43% 
A) 2.6% 
B) 4.00% 
C) 8.67% 
D) 31.43%

Question 11

__________ developed a popular method for risk-adjusted performance evaluation of mutual funds.

Accepted Answer

A) Eugene Fama 
B) Michael Jensen 
C) William Sharpe 
D) Jack Treynor 
E) Michael Jensen, William Sharpe, and Jack Treynor 
A) Eugene Fama 
B) Michael Jensen 
C) William Sharpe 
D) Jack Treynor 
E) Michael Jensen, William Sharpe, and Jack Treynor

Question 12

Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a higher beta than Gator Fund.According to the Treynor measure, the performance of Buckeye Fund

Accepted Answer

A) is better than the performance of Gator Fund. 
B) is the same as the performance of Gator Fund. 
C) is poorer than the performance of Gator Fund. 
D) cannot be measured as there are no data on the alpha of the portfolio. 
A) is better than the performance of Gator Fund. 
B) is the same as the performance of Gator Fund. 
C) is poorer than the performance of Gator Fund. 
D) cannot be measured as there are no data on the alpha of the portfolio.

Question 13

Suppose you purchase 100 shares of GM stock at the beginning of year 1 and purchase another 100 shares at the end of year 1.You sell all 200 shares at the end of year 2.Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end of year 1, and $65 at the end of year 2.Assume no dividends were paid on GM stock.Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock.

Accepted Answer

A) higher than 
B) the same as 
C) less than 
D) exactly proportional to 
A) higher than 
B) the same as 
C) less than 
D) exactly proportional to

Question 14

Most professionally managed equity funds generally

Accepted Answer

A) outperform the S&P 500 Index on both raw and risk-adjusted return measures. 
B) underperform the S&P 500 Index on both raw and risk-adjusted return measures. 
C) outperform the S&P 500 Index on raw return measures and underperform the S&P 500 Index on risk-adjusted return measures. 
D) underperform the S&P 500 Index on raw return measures and outperform the S&P 500 Index on risk-adjusted return measures. 
A) outperform the S&P 500 Index on both raw and risk-adjusted return measures. 
B) underperform the S&P 500 Index on both raw and risk-adjusted return measures. 
C) outperform the S&P 500 Index on raw return measures and underperform the S&P 500 Index on risk-adjusted return measures. 
D) underperform the S&P 500 Index on raw return measures and outperform the S&P 500 Index on risk-adjusted return measures.

Question 15

The comparison universe is

Accepted Answer

A) a concept found only in astronomy. 
B) the set of all mutual funds in the world. 
C) the set of all mutual funds in the U.S. 
D) a set of mutual funds with similar risk characteristics to your mutual fund. 
A) a concept found only in astronomy. 
B) the set of all mutual funds in the world. 
C) the set of all mutual funds in the U.S. 
D) a set of mutual funds with similar risk characteristics to your mutual fund.

Question 16

Suppose you own two stocks, A and B)In year 1, stock A earns a 2% return and stock B earns a 9% return.In year 2, stock A earns an 18% return and stock B earns an 11% return.Which stock has the higher geometric average return?

Accepted Answer

A) Stock A 
B) Stock B 
C) The two stocks have the same geometric average return. 
A) Stock A 
B) Stock B 
C) The two stocks have the same geometric average return.

Question 17

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio:   The risk-free return during the sample period was 4%.
What is the information ratio measure of performance evaluation for Monarch Stock Fund?

Accepted Answer

A) 1.00% 
B) 280.00% 
C) 44.00% 
D) 50.00% 
A) 1.00% 
B) 280.00% 
C) 44.00% 
D) 50.00%

Question 18

The following data are available relating to the performance of Seminole Fund and the market portfolio:   The risk-free return during the sample period was 6%.
If you wanted to evaluate the Seminole Fund using theM2measure, what percent of the adjusted portfolio would need to be invested in T-Bills?

Accepted Answer

A) -36% (borrow) 
B) 50% 
C) 8% 
D) 36% 
E) 27% 
A) -36% (borrow) 
B) 50% 
C) 8% 
D) 36% 
E) 27%

Question 19

Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50.At the end of year 1, you receive a $1 dividend and buy one more share for $72.At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share) and sell the shares for $67.20 each.The time-weighted return on your investment is

Accepted Answer

A) 10.0%. 
B) 8.7%. 
C) 19.7%. 
D) 17.6%. 
A) 10.0%. 
B) 8.7%. 
C) 19.7%. 
D) 17.6%.

Question 20

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes:   The return on a bogey portfolio was 2%, calculated from the following information.
  The total excess return on the Razorback Fund's managed portfolio was

Accepted Answer

A) -1.80%. 
B) -1.00%. 
C) 0.80%. 
D) 1.00%. 
A) -1.80%. 
B) -1.00%. 
C) 0.80%. 
D) 1.00%.

Exam 24: Portfolio Performance Evaluation

Mutual funds show ____________ evidence of serial correlation, and hedge funds show ____________ evidence of serial correlation.

The comparison universe is not

Studies of style analysis have found that ________ of fund returns can be explained by asset allocation alone.

The Jensen portfolio evaluation measure

The following data are available relating to the performance of Seminole Fund and the market portfolio: The risk-free return during the sample period was 6%. Calculate the M2 measure for the Seminole Fund.

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: The return on a bogey portfolio was 10%, calculated as follows: The total excess return on the Aggie managed portfolio was

A portfolio manager's ranking within a comparison universe may not provide a good measure of performance because

The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: The risk-free return during the sample period was 3%. Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.

__________ developed a popular method for risk-adjusted performance evaluation of mutual funds.

Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a higher beta than Gator Fund.According to the Treynor measure, the performance of Buckeye Fund

Most professionally managed equity funds generally

The comparison universe is

Suppose you own two stocks, A and B)In year 1, stock A earns a 2% return and stock B earns a 9% return.In year 2, stock A earns an 18% return and stock B earns an 11% return.Which stock has the higher geometric average return?

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: The risk-free return during the sample period was 4%. What is the information ratio measure of performance evaluation for Monarch Stock Fund?

The following data are available relating to the performance of Seminole Fund and the market portfolio: The risk-free return during the sample period was 6%. If you wanted to evaluate the Seminole Fund using theM2measure, what percent of the adjusted portfolio would need to be invested in T-Bills?

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: The return on a bogey portfolio was 2%, calculated from the following information. The total excess return on the Razorback Fund's managed portfolio was

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

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Mutual funds show evidence of serial correlation, and hedge funds show evidence of serial correlation.

The following data are available relating to the performance of Seminole Fund and the market portfolio: The risk-free return during the sample period was 6%. Calculate the M² measure for the Seminole Fund.

The following data are available relating to the performance of Seminole Fund and the market portfolio: The risk-free return during the sample period was 6%. If you wanted to evaluate the Seminole Fund using theM²measure, what percent of the adjusted portfolio would need to be invested in T-Bills?