Question 1

The performance persistence study by Carhart in 1997 found that persistence could be explained by:

Accepted Answer

A)  stock return factors and beta 
B)  beta and expenses 
C)  stock return factors and expenses 
D)  none of the above 
A)  stock return factors and beta 
B)  beta and expenses 
C)  stock return factors and expenses 
D)  none of the above

Question 2

The major criticism of the Sharpe index is that it relies on:

Accepted Answer

A)  the CML 
B)  the risk premium per unit 
C)  an efficiency measure 
D)  standard deviation 
A)  the CML 
B)  the risk premium per unit 
C)  an efficiency measure 
D)  standard deviation

Question 3

Portfolio A has a return of 5% and a standard deviation of 10%.Portfolio B has a return of 8% and a standard deviation of 12%.If the risk-free rate is 2% portfolio,then the Sharpe indices of A and B are:

Accepted Answer

A)  $ A=0.3 ; B=0.5 $ 
B)  $ \mathrm{A}=0.25 ; \mathrm{B}=0.25 $ 
C)  $ \mathrm{A}=0.35 ; \mathrm{B}=0.1 $ 
D)  $ \mathrm{A}=0.5 ; \mathrm{B}=0.1 $ 
A)  $ A=0.3 ; B=0.5 $ 
B)  $ \mathrm{A}=0.25 ; \mathrm{B}=0.25 $ 
C)  $ \mathrm{A}=0.35 ; \mathrm{B}=0.1 $ 
D)  $ \mathrm{A}=0.5 ; \mathrm{B}=0.1 $

Question 4

A portfolio with a beta of 0.5 has a return of 5% and a standard deviation of 10%.If the risk-free rate is 2% and the market return is 9%,calculate the Jensen's alpha measure for the portfolio.

Accepted Answer

A)  $ -0.005 $ 
B)  $ 0.040 $ 
C)  $ 0.055 $ 
D)  $  0.057 $ 
A)  $ -0.005 $ 
B)  $ 0.040 $ 
C)  $ 0.055 $ 
D)  $  0.057 $

Question 5

Past performance is not useful for funds managers.

Accepted Answer

A) True 
 B)False

Question 6

Volkman and Wohar (1995)find that __________ is associated with low management fees,whereas __________ tends to be associated with funds charging high management fees.

Accepted Answer

A)  superior performance persistence; poor performance 
B)  poor performance; superior performance persistence 
C)  average performance; poor performance 
D)  average performance; superior performance 
A)  superior performance persistence; poor performance 
B)  poor performance; superior performance persistence 
C)  average performance; poor performance 
D)  average performance; superior performance

Question 7

Portfolio A has a return of 8% and a standard deviation of 10%.Portfolio B has a return of 12% and a standard deviation of 15%.If the risk-free rate is 4%,portfolio A has the highest Sharpe index.

Accepted Answer

A) True 
 B)False

Question 8

For which of the following reasons may a mimicking portfolio fail to accurately track an index?

Accepted Answer

A)  beta is not used 
B)  time periods do not vary 
C)  it is assumed that the index remains the same 
D)  all of these choices 
A)  beta is not used 
B)  time periods do not vary 
C)  it is assumed that the index remains the same 
D)  all of these choices

Question 9

A criticism of Jensen's alpha is that:

Accepted Answer

A)  it can only be applied to individual shares 
B)  it can only be used on portfolios 
C)  it fails to measure consistent performance 
D)  none of these chocies 
A)  it can only be applied to individual shares 
B)  it can only be used on portfolios 
C)  it fails to measure consistent performance 
D)  none of these chocies

Question 10

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation.The risk-free return during the sample period is 6%.The average returns,standard deviations and betas for the three funds are given below,as is the data for the S&P 500 index.
$\begin{array}{|l|c|c|c|}
\hline & \text { Average Return } & \text { Standard Deviation } & \text { Beat } \
\hline \text { Fund A } & 24 \% & 30 \% & 1.5 \
\hline \text { Fund B } & 12 \% & 10 \% & 0.5 \
\hline \text { Fund C } & 22 \% & 20 \% & 1.0 \
\hline \text { S\&P 500 } & 18 \% & 16 \% & 1.0 \
\hline
\end{array}$
The fund with the highest Sharpe measure is __________.

Accepted Answer

A) Fund A 
B) Fund B 
C) Fund C 
D) Funds A and B are tied for highest 
A) Fund A 
B) Fund B 
C) Fund C 
D) Funds A and B are tied for highest

Question 11

An English survey of 2000 investors conducted in 2001 found that ___ of respondents regard performance as the most important factor to consider.

Accepted Answer

A)  $ 7 \% $ 
B)  $ 22 \% $ 
C)  $ 58 \% $ 
D)  $ 91 \% $ 
A)  $ 7 \% $ 
B)  $ 22 \% $ 
C)  $ 58 \% $ 
D)  $ 91 \% $

Question 12

The Treynor measure differs from the Sharpe index,because it uses beta risk rather than standard deviation as the risk measure.

Accepted Answer

A) True 
 B)False

Question 13

Sinclair's study in 1990 for Australian mutual funds reports negative returns for market timing.

Accepted Answer

A) True 
 B)False

Question 14

Henriksson and Merton (1981)measure market timing using the maximum of zero and the market risk premium as a factor.

Accepted Answer

A) True 
 B)False

Question 15

Studies appear to exhibit mild evidence that well performing funds exhibit performance __________,but stronger evidence that poor performing funds __________.

Accepted Answer

A)  persistence; improve their performance 
B)  persistence; continue to perform poorly 
C)  reversal; improve their performance 
D)  reversal; continue to perform poorly 
A)  persistence; improve their performance 
B)  persistence; continue to perform poorly 
C)  reversal; improve their performance 
D)  reversal; continue to perform poorly

Question 16

Robson (1986)examines managed funds in Australia over the period 1969-78 and reports generally _________values of Jensen's alpha and _________ consistency in performance across time.

Accepted Answer

A)  Negative, No 
B)  Positive, No 
C)  Negative, has 
D)  Positive, has 
A)  Negative, No 
B)  Positive, No 
C)  Negative, has 
D)  Positive, has

Question 17

Dissatisfaction with the traditional performance measures has led to the development of a new generation of performance measures such as

Accepted Answer

A)  Market timing measures 
B)  The information ratio 
C)  The index tracking 
D)  None of these choices 
A)  Market timing measures 
B)  The information ratio 
C)  The index tracking 
D)  None of these choices

Question 18

Blake,Elton and Gruber (1993)find that most bond funds have __________ indicating underperformance.

Accepted Answer

A)  betas greater than one 
B)  betas less than one 
C)  negative alphas 
D)  positive alphas 
A)  betas greater than one 
B)  betas less than one 
C)  negative alphas 
D)  positive alphas

Question 19

A portfolio with a beta of 1.7 has a return of 15% and a standard deviation of 10%.If the risk-free rate is 5% and the market return is 119%,calculate the Jensen's alpha measure for the portfolio.

Accepted Answer

A)  $ -0.005 $ 
B)  $ -0.002 $ 
C)  $ 0.004 $ 
D)  $ 0.009 $ 
A)  $ -0.005 $ 
B)  $ -0.002 $ 
C)  $ 0.004 $ 
D)  $ 0.009 $

Question 20

Treynor and Mazuy model active managers' market timing ability by introducing a quadratic term.

Accepted Answer

A) True 
 B)False

The performance persistence study by Carhart in 1997 found that persistence could be explained by:

The major criticism of the Sharpe index is that it relies on:

Portfolio A has a return of 5% and a standard deviation of 10%.Portfolio B has a return of 8% and a standard deviation of 12%.If the risk-free rate is 2% portfolio,then the Sharpe indices of A and B are:

A portfolio with a beta of 0.5 has a return of 5% and a standard deviation of 10%.If the risk-free rate is 2% and the market return is 9%,calculate the Jensen's alpha measure for the portfolio.

Past performance is not useful for funds managers.

Volkman and Wohar (1995)find that is associated with low management fees,whereas tends to be associated with funds charging high management fees.

Portfolio A has a return of 8% and a standard deviation of 10%.Portfolio B has a return of 12% and a standard deviation of 15%.If the risk-free rate is 4%,portfolio A has the highest Sharpe index.

For which of the following reasons may a mimicking portfolio fail to accurately track an index?

A criticism of Jensen's alpha is that:

An English survey of 2000 investors conducted in 2001 found that ___ of respondents regard performance as the most important factor to consider.

The Treynor measure differs from the Sharpe index,because it uses beta risk rather than standard deviation as the risk measure.

Sinclair's study in 1990 for Australian mutual funds reports negative returns for market timing.

Henriksson and Merton (1981)measure market timing using the maximum of zero and the market risk premium as a factor.

Studies appear to exhibit mild evidence that well performing funds exhibit performance ,but stronger evidence that poor performing funds .

Robson (1986)examines managed funds in Australia over the period 1969-78 and reports generally _values of Jensen's alpha and _ consistency in performance across time.

Dissatisfaction with the traditional performance measures has led to the development of a new generation of performance measures such as

Blake,Elton and Gruber (1993)find that most bond funds have __________ indicating underperformance.

A portfolio with a beta of 1.7 has a return of 15% and a standard deviation of 10%.If the risk-free rate is 5% and the market return is 119%,calculate the Jensen's alpha measure for the portfolio.

Treynor and Mazuy model active managers' market timing ability by introducing a quadratic term.

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Filters

Exam 20: Performance Evaluation of Managed Funds

The performance persistence study by Carhart in 1997 found that persistence could be explained by:

The major criticism of the Sharpe index is that it relies on:

Portfolio A has a return of 5% and a standard deviation of 10%.Portfolio B has a return of 8% and a standard deviation of 12%.If the risk-free rate is 2% portfolio,then the Sharpe indices of A and B are:

A portfolio with a beta of 0.5 has a return of 5% and a standard deviation of 10%.If the risk-free rate is 2% and the market return is 9%,calculate the Jensen's alpha measure for the portfolio.

Past performance is not useful for funds managers.

Volkman and Wohar (1995)find that __________ is associated with low management fees,whereas __________ tends to be associated with funds charging high management fees.

Portfolio A has a return of 8% and a standard deviation of 10%.Portfolio B has a return of 12% and a standard deviation of 15%.If the risk-free rate is 4%,portfolio A has the highest Sharpe index.

For which of the following reasons may a mimicking portfolio fail to accurately track an index?

A criticism of Jensen's alpha is that:

An English survey of 2000 investors conducted in 2001 found that ___ of respondents regard performance as the most important factor to consider.

The Treynor measure differs from the Sharpe index,because it uses beta risk rather than standard deviation as the risk measure.

Sinclair's study in 1990 for Australian mutual funds reports negative returns for market timing.

Henriksson and Merton (1981)measure market timing using the maximum of zero and the market risk premium as a factor.

Studies appear to exhibit mild evidence that well performing funds exhibit performance __________,but stronger evidence that poor performing funds __________.

Robson (1986)examines managed funds in Australia over the period 1969-78 and reports generally _________values of Jensen's alpha and _________ consistency in performance across time.

Dissatisfaction with the traditional performance measures has led to the development of a new generation of performance measures such as

Blake,Elton and Gruber (1993)find that most bond funds have __________ indicating underperformance.

A portfolio with a beta of 1.7 has a return of 15% and a standard deviation of 10%.If the risk-free rate is 5% and the market return is 119%,calculate the Jensen's alpha measure for the portfolio.

Treynor and Mazuy model active managers' market timing ability by introducing a quadratic term.

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Filters

Volkman and Wohar (1995)find that is associated with low management fees,whereas tends to be associated with funds charging high management fees.

Studies appear to exhibit mild evidence that well performing funds exhibit performance ,but stronger evidence that poor performing funds .

Robson (1986)examines managed funds in Australia over the period 1969-78 and reports generally _values of Jensen's alpha and _ consistency in performance across time.