Question 1

Past fund performance is correlated with future fund performance,such as,poor fund performance predicts future poor performance.

Accepted Answer

ETFs are investment funds traded on stock exchanges,which usually track an index,such as a stock index or bond index.Like closed-end funds they trade at a price determined by supply and demand and can be bought and sold at that price during the day.Unlike closed-end funds,ETFs trade close to its net asset value over the course of the trading day.They differ in that,as at the close of the trading day investors can create more shares of ETFs by turning in a basket of securities which replicate the holdings of the ETF,or can turn in ETF shares for a basket of the underlying securities.This eliminates one of the major disadvantage of closed-end funds,the potential for large discounts.If the price of an ETF strays very far from its net asset value,arbitrageurs will create or destroy shares,driving the price very close to the net asset value.

Question 2

A perfect forecasting ability implies that:

Accepted Answer

A)  the predicted change in earnings are higher than the realized change in earnings. 
B)  the forecaster outperforms the naive no-change model. 
C)  the value of Thiel's inequality coefficient will be more than 1. 
D)  the predicted change in earnings equals difference between actual earnings and forecasted level of earnings. D

Question 3

Mutual funds are subject to a single set of tax rules.To avoid taxes,mutual funds must distribute by December 31st 98% of all ordinary income earned during the calendar year and 98% of all realized net capital gains earned during the previous 12 months ending October 31st.

Accepted Answer

A) True 
 B)False  True

Question 4

While money managers,on average,have not done as well as the market,larger money managers have generally done much better than smaller money managers.

Accepted Answer

A) True 
 B)False

Question 5

Explain the steps involved in evaluating the valuation process of an output.

Accepted Answer

The answer of Explain the steps involved in evaluating the...

Question 6

An active strategy utilized for common stocks

Accepted Answer

A)  involves less diversifiable risk than an index fund. 
B)  involves a lower cost of paying the forecasters either in form of salaries or in the management fees than a passive strategy. 
C)  requires higher turnover as opposed to the very low turnover of the buy and hold strategies of an index fund. 
D)  requires lower transaction cost as compared to passive management.

Question 7

One of the techniques adopted by managers to improve performance through market timing is to:

Accepted Answer

A)  maintain a constant percentage of amount invested in bonds and stock. 
B)  adjust the expected return on the portfolio in anticipation of changes in market. 
C)  adjust the unsystematic risk in anticipation of changes in market. 
D)  adjust the average beta on the portfolio in anticipation of changes in market.

Question 8

The tremendous growth in assets under management of open-end funds was fuelled by two sources: a high rate of return in the capital markets and huge inflows of new capital due in large part to the growth in the private pension market in the U.S.

Accepted Answer

A) True 
 B)False

Question 9

List the methods that are employed to determine the "I's" in the literature of performance measurement,where the "I's" represent influences that systematically affect returns.

Accepted Answer

The answer of List the methods that are employed to...

Question 10

Several studies have looked at the effect of analyst recommendations on stock prices.These studies have concluded that the recommendations are not useful to investors interested in making excess returns.

Accepted Answer

A) True 
 B)False

Question 11

Explain how a fund manager may improve the portfolio's performance through market timing.Also discuss the limitation of using such strategies.

Accepted Answer

The answer of Explain how a fund manager may improve...

Question 12

Explain how Betas of Index funds result below one under a passive strategy.

Accepted Answer

The answer of Explain how Betas of Index funds result...

Exam 5: Evaluating the Investment Process

Past fund performance is correlated with future fund performance,such as,poor fund performance predicts future poor performance.

A perfect forecasting ability implies that:

Mutual funds are subject to a single set of tax rules.To avoid taxes,mutual funds must distribute by December 31^st 98% of all ordinary income earned during the calendar year and 98% of all realized net capital gains earned during the previous 12 months ending October 31^st.

While money managers,on average,have not done as well as the market,larger money managers have generally done much better than smaller money managers.

Explain the steps involved in evaluating the valuation process of an output.

An active strategy utilized for common stocks

One of the techniques adopted by managers to improve performance through market timing is to:

The tremendous growth in assets under management of open-end funds was fuelled by two sources: a high rate of return in the capital markets and huge inflows of new capital due in large part to the growth in the private pension market in the U.S.

List the methods that are employed to determine the "I's" in the literature of performance measurement,where the "I's" represent influences that systematically affect returns.

Several studies have looked at the effect of analyst recommendations on stock prices.These studies have concluded that the recommendations are not useful to investors interested in making excess returns.

Explain how a fund manager may improve the portfolio's performance through market timing.Also discuss the limitation of using such strategies.

Explain how Betas of Index funds result below one under a passive strategy.