Question 1

Henriksson (1984)found that,on average,betas of funds __________ during market advances.

Accepted Answer

A) increased very significantly 
B) increased slightly 
C) decreased slightly 
D) decreased very significantly 
E) did not change 
A) increased very significantly 
B) increased slightly 
C) decreased slightly 
D) decreased very significantly 
E) did not change C

Question 2

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 3

The Modigliani M2 measure and the Treynor T2 measure

Accepted Answer

A) are identical. 
B) are nearly identical and will rank portfolios the same way. 
C) are nearly identical but might rank portfolios differently. 
D) are somewhat different; M2 can be used to rank portfolios but T2 cannot. 
E) are somewhat different; T2 can be used to rank portfolios but M2 cannot. 
A) are identical. 
B) are nearly identical and will rank portfolios the same way. 
C) are nearly identical but might rank portfolios differently. 
D) are somewhat different; M2 can be used to rank portfolios but T2 cannot. 
E) are somewhat different; T2 can be used to rank portfolios but M2 cannot. C

Question 4

Suppose two portfolios have the same average return,the same standard deviation of returns,but Buckeye Fund has a lower 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 is no data on the alpha of the portfolio. 
E) none of the above is true. 
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 is no data on the alpha of the portfolio. 
E) none of the above is true.

Question 5

The M2 measure was developed by

Accepted Answer

A) Merton and Miller. 
B) Miller and Miller. 
C) Modigliani and Miller. 
D) Modigliani and Modigliani. 
E) the M&M Mars Company. 
A) Merton and Miller. 
B) Miller and Miller. 
C) Modigliani and Miller. 
D) Modigliani and Modigliani. 
E) the M&M Mars Company.

Question 6

Suppose two portfolios have the same average return,the same standard deviation of returns,but Aggie Fund has a higher beta than Raider Fund.According to the Sharpe measure,the performance of Aggie Fund

Accepted Answer

A) is better than the performance of Raider Fund. 
B) is the same as the performance of Raider Fund. 
C) is poorer than the performance of Raider Fund. 
D) cannot be measured as there is no data on the alpha of the portfolio. 
E) none of the above is true. 
A) is better than the performance of Raider Fund. 
B) is the same as the performance of Raider Fund. 
C) is poorer than the performance of Raider Fund. 
D) cannot be measured as there is no data on the alpha of the portfolio. 
E) none of the above is true.

Question 7

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: $$\begin{array} { | l | l | l | } 
\hline & \text { Weight } & \text { Return } \
\hline \text { Bonds } & 10 \% & 6 \% \
\hline \text { Stocks } & 90 \% & 16 \% \
\hline
\end{array}$$ The return on a bogey portfolio was 10%, calculated as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Weight } & \text { Return } \
\hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \
\hline \text { Stocks (S\&P 500 Index) } & 50 \% & 15 \% \
\hline
\end{array}$$
-The contribution of asset allocation across markets to the total excess return was

Accepted Answer

A) 1% 
B) 3% 
C) 4% 
D) 5% 
E) none of the above 
A) 1% 
B) 3% 
C) 4% 
D) 5% 
E) none of the above

Question 8

Suppose two portfolios have the same average return,the same standard deviation of returns,but portfolio A has a lower beta than portfolio B.According to the Treynor measure,the performance of portfolio A __________.

Accepted Answer

A) is better than the performance of portfolio B 
B) is the same as the performance of portfolio B 
C) is poorer than the performance of portfolio B 
D) cannot be measured as there is no data on the alpha of the portfolio 
E) none of the above is true. 
A) is better than the performance of portfolio B 
B) is the same as the performance of portfolio B 
C) is poorer than the performance of portfolio B 
D) cannot be measured as there is no data on the alpha of the portfolio 
E) none of the above is true.

Question 9

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: $$\begin{array} { | l | l | l | } 
\hline & \text { Weight } & \text { Return } \
\hline \text { Bonds } & 20 \% & 5 \% \
\hline \text { Stocks } & 80 \% & 0 \% \
\hline
\end{array}$$ The return on a bogey portfolio was 2%, calculated from the following information. $$\begin{array} { | l | l | l | } 
\hline & \text { Weight } & \text { Return } \
\hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \
\hline \text { Stocks (S\&P 500 Index) } & 50 \% & - 1 \% \
\hline
\end{array}$$
-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% 
E) none of the above 
A) -1.80% 
B) -1.00% 
C) 0.80% 
D) 1.00% 
E) none of the above

Question 10

The __________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Accepted Answer

A) Sharpe measure 
B) Treynor measure 
C) Jensen measure 
D) information ratio 
E) none of the above 
A) Sharpe measure 
B) Treynor measure 
C) Jensen measure 
D) information ratio 
E) none of the above

Question 11

Discuss,in general,the performance attribution procedures.

Accepted Answer

The portfolio management decision proces

Question 12

What is the Sharpe measure of performance evaluation for Sooner Stock Fund?

Accepted Answer

A) 1.33% 
B) 4.00% 
C) 8.67% 
D) 38.6% 
E) 37.14% 
A) 1.33% 
B) 4.00% 
C) 8.67% 
D) 38.6% 
E) 37.14%

Question 13

The Sharpe,Treynor,and Jensen portfolio performance measures are derived from the CAPM,

Accepted Answer

A) therefore,it does not matter which measure is used to evaluate a portfolio manager. 
B) however,the Sharpe and Treynor measures use different risk measures,therefore the measures vary as to whether or not they are appropriate,depending on the investment scenario. 
C) therefore,all measure the same attributes. 
D) A and B. 
E) none of the above. 
A) therefore,it does not matter which measure is used to evaluate a portfolio manager. 
B) however,the Sharpe and Treynor measures use different risk measures,therefore the measures vary as to whether or not they are appropriate,depending on the investment scenario. 
C) therefore,all measure the same attributes. 
D) A and B. 
E) none of the above.

Question 14

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: $$\begin{array} { | l | l | l | } 
\hline & \text { Weight } & \text { Return } \
\hline \text { Bonds } & 20 \% & 5 \% \
\hline \text { Stocks } & 80 \% & 0 \% \
\hline
\end{array}$$ The return on a bogey portfolio was 2%, calculated from the following information. $$\begin{array} { | l | l | l | } 
\hline & \text { Weight } & \text { Return } \
\hline \text { Bonds (Lehman Brothers Index) } & 50 \% & 5 \% \
\hline \text { Stocks (S\&P 500 Index) } & 50 \% & - 1 \% \
\hline
\end{array}$$
-The contribution of selection within markets to the Razorback Fund's total excess return was __________.

Accepted Answer

A) -1.80% 
B) -1.00% 
C) 0.80% 
D) 1.00% 
E) none of the above 
A) -1.80% 
B) -1.00% 
C) 0.80% 
D) 1.00% 
E) none of the above

Question 15

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

Question 16

The dollar-weighted return on a portfolio is equivalent to

Accepted Answer

A) the time-weighted return. 
B) the geometric average return. 
C) the arithmetic average return. 
D) the portfolio's internal rate of return. 
E) none of the above. 
A) the time-weighted return. 
B) the geometric average return. 
C) the arithmetic average return. 
D) the portfolio's internal rate of return. 
E) none of the above.

Question 17

The following data are available relating to the performance of Wildcat Fund and the market portfolio: $$\begin{array} { | l | l | l | } 
\hline & \text { Wildeat } & \text { Market Portfolio } \
\hline \text { Average Return } & 18 \% & 15 \% \
\hline \text { Standard Deviation of Returns } & 25 \% & 20 \% \
\hline \text { Beta } & 1.25 & 1.00 \
\hline \text { Residual Standard Deviation } & 2 \% & 0 \% \
\hline
\end{array}$$ The risk-free return during the sample period was 7%.
-Calculate Sharpe's measure of performance for Wildcat Fund.

Accepted Answer

A) 1.00% 
B) 8.80% 
C) 44.00% 
D) 50.00% 
E) none of the above 
A) 1.00% 
B) 8.80% 
C) 44.00% 
D) 50.00% 
E) none of the above

Question 18

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% 
E) none of the above 
A) 10.0% 
B) 8.7% 
C) 19.7% 
D) 17.6% 
E) none of the above

Question 19

Suppose you buy 100 shares of Abolishing Dividend Corporation at the beginning of year 1 for $80.Abolishing Dividend Corporation pays no dividends.The stock price at the end of year 1 is $100,$120 at the end of year 2,and $150 at the end of year 3.The stock price declines to $100 at the end of year 4,and you sell your 100 shares.For the four years,your geometric average return is

Accepted Answer

A) 0.0% 
B) 1.0% 
C) 5.7% 
D) 9.2% 
E) 34.5% 
A) 0.0% 
B) 1.0% 
C) 5.7% 
D) 9.2% 
E) 34.5%

Question 20

Suppose the risk-free return is 3%.The beta of a managed portfolio is 1.75,the alpha is 0%,and the average return is 16%.Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio as

Accepted Answer

A) 12.3% 
B) 10.4% 
C) 15.1% 
D) 16.7% 
E) none of the above 
A) 12.3% 
B) 10.4% 
C) 15.1% 
D) 16.7% 
E) none of the above

Exam 24: Portfolio Performance Evaluation

Henriksson (1984)found that,on average,betas of funds __________ during market advances.

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

The Modigliani M2 measure and the Treynor T2 measure

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

The M2 measure was developed by

Suppose two portfolios have the same average return,the same standard deviation of returns,but Aggie Fund has a higher beta than Raider Fund.According to the Sharpe measure,the performance of Aggie Fund

Suppose two portfolios have the same average return,the same standard deviation of returns,but portfolio A has a lower beta than portfolio B.According to the Treynor measure,the performance of portfolio A __________.

The __________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Discuss,in general,the performance attribution procedures.

What is the Sharpe measure of performance evaluation for Sooner Stock Fund?

The Sharpe,Treynor,and Jensen portfolio performance measures are derived from the CAPM,

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

The dollar-weighted return on a portfolio is equivalent to

Suppose the risk-free return is 3%.The beta of a managed portfolio is 1.75,the alpha is 0%,and the average return is 16%.Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio as

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and 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

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

The Modigliani M² measure and the Treynor T² measure

The M² measure was developed by

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