Question 1

The Sharpe measure on a portfolio which earns 12%, with a standard deviation of 30%, and beta of 1.27, is:

Accepted Answer

A) .40. 
B) .094. 
C) .508. 
D) There is not enough information 
A) .40. 
B) .094. 
C) .508. 
D) There is not enough information

Question 2

Over 20-year rolling periods, the worst performance by small company stocks was positive, according to Ibbotson and Associates.

Accepted Answer

A) True 
 B)False

Question 3

Most funds show a positive performance compared to a market average.

Accepted Answer

A) True 
 B)False

Question 4

Most funds' performance in terms of R2 is poor.

Accepted Answer

A) True 
 B)False

Question 5

The best way to measure adherence to the objectives of money managers and the financial needs of investors is:

Accepted Answer

A) to calculate the total returns on the portfolios that they manage. 
B) to evaluate the risk exposure that the fund manager has accepted. 
C) to calculate the dividend income that the portfolio has achieved. 
D) to calculate the capital gains that the portfolio has achieveD. 
A) to calculate the total returns on the portfolios that they manage. 
B) to evaluate the risk exposure that the fund manager has accepted. 
C) to calculate the dividend income that the portfolio has achieved. 
D) to calculate the capital gains that the portfolio has achieveD.

Question 6

The measure of performance defined as the difference between a fund's excess return and a point on the market line corresponding to the fund's beta is called:

Accepted Answer

A) alpha. 
B) average differential return. 
C) the Jensen measure. 
D) More than one of the above 
A) alpha. 
B) average differential return. 
C) the Jensen measure. 
D) More than one of the above

Question 7

Most law suits against fund managers are for poor performance in terms of return.

Accepted Answer

A) True 
 B)False

Question 8

Michael Jensen uses the security market line to evaluate excess returns on investments.

Accepted Answer

A) True 
 B)False

Question 9

A firm with an alpha of .5:

Accepted Answer

A) has performed half as well as the market. 
B) has performed above the market line. 
C) has performed below the market line. 
D) is likely to have a high beta. 
A) has performed half as well as the market. 
B) has performed above the market line. 
C) has performed below the market line. 
D) is likely to have a high beta.

Question 10

The Jensen study indicates that mutual fund managers tend to have very superior performances.

Accepted Answer

A) True 
 B)False

Question 11

According to numerous studies conducted by various professors, portfolio managers generally:

Accepted Answer

A) outperform the market on a risk-adjusted basis. 
B) perform the same as the market. 
C) under-perform the market. 
D) greatly outperform the market on a risk-adjusted basis. 
A) outperform the market on a risk-adjusted basis. 
B) perform the same as the market. 
C) under-perform the market. 
D) greatly outperform the market on a risk-adjusted basis.

Question 12

R2 is a good measure of efficient diversification.

Accepted Answer

A) True 
 B)False

Question 13

In general, the best portfolio managers are those who earn the highest returns.

Accepted Answer

A) True 
 B)False

Question 14

The effectiveness of portfolio diversification can be measured by the coefficient of determination, which is the correlation between excess returns on the market and those on the fund.

Accepted Answer

A) True 
 B)False

Question 15

The Brinson, Hood, and Beebower (BHB) study indicated that asset managers are more likely to lose their jobs because of poor _____________ rather than poor _________.

Accepted Answer

A) asset allocation; stock selection 
B) stock selection; asset allocation 
C) customer relations; performance 
D) performance; customer relations 
A) asset allocation; stock selection 
B) stock selection; asset allocation 
C) customer relations; performance 
D) performance; customer relations

Question 16

The term excess returns is commonly defined as:

Accepted Answer

A) total portfolio returns, minus the market rate. 
B) total portfolio returns, minus the risk-free rate. 
C) (portfolio returns minus the risk-free rate) divided by beta. 
D) None of the above 
A) total portfolio returns, minus the market rate. 
B) total portfolio returns, minus the risk-free rate. 
C) (portfolio returns minus the risk-free rate) divided by beta. 
D) None of the above

Question 17

If the portfolio return is 10%, and the U.S. T-bill rate is 5.75%, what is the Treynor measure of excess returns?

Accepted Answer

A) .4250 
B) .0425 
C) .7391 
D) There is not enough information to tell 
A) .4250 
B) .0425 
C) .7391 
D) There is not enough information to tell

Question 18

Studies by Ippolito and Goodwin indicate that mutual fund managers are superior performers.

Accepted Answer

A) True 
 B)False

Question 19

A mutual fund with excess returns very similar to those of the market will have an R2 (coefficient of determination) of:

Accepted Answer

A) slightly less than 1. 
B) slightly greater than 1. 
C) greater than or less than one. 
D) There is not enough information to tell 
A) slightly less than 1. 
B) slightly greater than 1. 
C) greater than or less than one. 
D) There is not enough information to tell

Question 20

A portfolio manager with a beta less than one should be expected to provide higher returns than the market.

Accepted Answer

A) True 
 B)False

Exam 22: Measuring Risks and Returns of Portfolio Managers

The Sharpe measure on a portfolio which earns 12%, with a standard deviation of 30%, and beta of 1.27, is:

Over 20-year rolling periods, the worst performance by small company stocks was positive, according to Ibbotson and Associates.

Most funds show a positive performance compared to a market average.

Most funds' performance in terms of R2 is poor.

The best way to measure adherence to the objectives of money managers and the financial needs of investors is:

The measure of performance defined as the difference between a fund's excess return and a point on the market line corresponding to the fund's beta is called:

Most law suits against fund managers are for poor performance in terms of return.

Michael Jensen uses the security market line to evaluate excess returns on investments.

A firm with an alpha of .5:

The Jensen study indicates that mutual fund managers tend to have very superior performances.

According to numerous studies conducted by various professors, portfolio managers generally:

R2 is a good measure of efficient diversification.

In general, the best portfolio managers are those who earn the highest returns.

The effectiveness of portfolio diversification can be measured by the coefficient of determination, which is the correlation between excess returns on the market and those on the fund.

The Brinson, Hood, and Beebower (BHB) study indicated that asset managers are more likely to lose their jobs because of poor _____________ rather than poor _________.

The term excess returns is commonly defined as:

If the portfolio return is 10%, and the U.S. T-bill rate is 5.75%, what is the Treynor measure of excess returns?

Studies by Ippolito and Goodwin indicate that mutual fund managers are superior performers.

A mutual fund with excess returns very similar to those of the market will have an R2 (coefficient of determination) of:

A portfolio manager with a beta less than one should be expected to provide higher returns than the market.

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Bond and Fixed-Income Fundamentals

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

Filters

Most funds' performance in terms of R² is poor.

R² is a good measure of efficient diversification.

The Brinson, Hood, and Beebower (BHB) study indicated that asset managers are more likely to lose their jobs because of poor _____ rather than poor _.

A mutual fund with excess returns very similar to those of the market will have an R² (coefficient of determination) of: