Question 1

Portfolio C has a reward-to-volatility ratio of 1.8. For the same period, the average market return was 3.2% and the average riskfree return was 2%. The comparison is

Accepted Answer

A)   the slope of the SML is 1.2 and Portfolio C had an inferior performance.
B)   there is no standard to determine Portfolio C's performance.
C)   the slope of the SML is 1.2 and Portfolio C had a superior performance.
D)   the slope of the SML is 1.6 and Portfolio C had an inferior performance.

Question 2

When using linear regression with a dummy variable to measure a market timer's performance, the characteristic line for a superior performer would have the following characteristic

Accepted Answer

A)   the smaller the market return, the greater the slope.
B)   slope on the right greater than the slope on the left.
C)   a straight line over the whole range of market returns.
D)   a flat shape with slope of 0. B

Question 3

Because all the measures of portfolio performance except the reward-to-variability ratio, require the identification of a _____ surrogate, whatever is used can be criticized as being inadequate.

Accepted Answer

A)   security market
B)   capital market
C)   market portfolio
D)   market volatility

Question 4

Weingarten Fund earns a 21% return for the first year; a 12% return for the second year; and a negative 9% for the third, what is the annual geometric return for Weingarten?

Accepted Answer

A)   5.55%
B)   6.77%
C)   6.8%
D)   7.2%

Question 5

The reward-to-volatility ratio is calculated by dividing the portfolio average excess return by its_____.

Accepted Answer

A)   market risk
B)   security beta
C)   ex-post alpha
D)   security risk

Question 6

Of the three methods to weight a market index, the ____ method involves summing the prices of the stocks in the index and dividing this sum by a constant in order to calculate an average price.

Accepted Answer

A)   Price-weighting
B)   Value-weighting
C)   Equal-weighting
D)   Geometric-mean

Question 7

Portfolio X had an average quarterly return of 5.2% with a standard deviation of 6.5%. The market had an average quarterly return of 6.1% with a standard deviation of 10.5%.	The average riskfree rate was 3%. Using the reward-to-variability ratio,

Accepted Answer

A)   the portfolio had an inferior performance.
B)   Portfolio X lies above the ex post CML.
C)   Portfolio X has a slope lower than that of the CML.
D)   there is insufficient data to compare them.

Question 8

Which of the following statements accurately represents what clients can do to ensure that their portfolios reflect their own specific risk-return preferences?

Accepted Answer

A)   Clients need to develop monitoring procedures to evaluate their manager's investment activities relative to predefined goals and constraints
B)   Clients need not pay very close attention to their investment objectives if they have an effective relationship with their manager
C)   The client will have to subordinate their individual preferences to all the clients in the management firm for optimal results.
D)   Rather than give overly detailed investment objectives, the client should be prepared to allow their manager to interpret for them the optimal tradeoff between risk and return

Question 9

Measures of returns include such methods as ___which is used when deposits or withdrawals occur sometime between the beginning and end of the investment interval.

Accepted Answer

A)   time-weighted returns
B)   the geometric mean
C)   the arithmetic mean
D)   dollar-weighted returns D

Question 10

A portfolio had a value of $50 million at the beginning of a quarter and a value of $47 million half way through the quarter. At this point, there was a $4 million withdrawal, and the portfolio value at the end of the quarter was $41 million. The time-weighted return for the quarter was

Accepted Answer

A)   - 6.9%.
B)   -10.4%.
C)   - 7.1%.
D)   - 8.2%.

Question 11

The use of Treasury Bills to set the riskfree rate tends to

Accepted Answer

A)   set a large riskfree rate.
B)   favor aggressive portfolios.
C)   set return benchmarks for margin portfolios that are too high.
D)   assume too large a borrowing rate.

Question 12

Portfolio C has an ex post alpha of +1.7 and the slope of the SML is 2.4. This means the reward-to-volatility ratio for Portfolio C will be

Accepted Answer

A)   between 1.7 and 2.4.
B)   also 1.7.
C)   less than 2.4.
D)   greater than 2.4.

Question 13

In selecting benchmark portfolios for comparison, the client should be certain that they represent

Accepted Answer

A)   the best possible portfolio construction available
B)   the best but not necessarily feasible portfolio
C)   alternative portfolios that could have been chosen instead of the one chosen
D)   portfolios of varying degrees of risk C

Question 14

If an investor buys a stock and holds it for three years, earning 15% for the first year; negative 15% for the second; and 12% for the third, what was the annual geometric return?

Accepted Answer

A)   3.1%
B)   3.75%
C)   4.11%
D)   5.66%

Question 15

A criticism of the S&P500 used as a market index would include which one of the following statements?

Accepted Answer

A)   The S&P500 is a value-weighted rather than a price-weighted index.
B)   It is nearly impossible for an investor to form a portfolio that replicates the S&P500 over time.
C)   Transaction costs may be effectively eliminated from the index.
D)   Stocks in the Index are not replaced often enough to cause problems.

Question 16

Diversification of judgment where clients will split their assets among a number of mangers is done in order to avoid

Accepted Answer

A)   the random errors in judgment by individual managers
B)   being excessively exposed to the possible poor performance of a particular investment style
C)   serious harm inflicted by managers as a group
D)   serious harm by the investment decisions of one or two managers.

Question 17

For a portfolio with superior performance, its characteristic line will

Accepted Answer

A)   have a more positive slope than the SML.
B)   be flat.
C)   intercept the SML at the average market return.
D)   lie below the SML.

Question 18

For a portfolio, the returns for 4 quarters are 2%, -4%, -2%, 10%. The annual return that is more accurate than adding the four values together is

Accepted Answer

A)   -3.2%.
B)   6.3%.
C)   6.5%.
D)   5.6%.

Question 19

The ex-post characteristic line is the result of a simple linear regression model expressing the relationship between the excess return on a security and the

Accepted Answer

A)   volatility of the security
B)   market beta
C)   excess return on the market portfolio
D)   volatility of the market portfolio

Question 20

For the last five years the S&P 500 has had an average quarterly return of 4.5% and a standard deviation of 11.6%. If the average riskfree return was 2.2% per quarter, the slope of the S&P 500's CML is

Accepted Answer

A)   .42%.
B)   .02%.
C)   3.62.
D)   .2.

Exam 18: Portfolio Performance Evaluation

Portfolio C has a reward-to-volatility ratio of 1.8. For the same period, the average market return was 3.2% and the average riskfree return was 2%. The comparison is

Correct AnswerverifiedShow Answer

When using linear regression with a dummy variable to measure a market timer's performance, the characteristic line for a superior performer would have the following characteristic

Correct AnswerverifiedB

Because all the measures of portfolio performance except the reward-to-variability ratio, require the identification of a _____ surrogate, whatever is used can be criticized as being inadequate.

Correct AnswerverifiedShow Answer

Weingarten Fund earns a 21% return for the first year; a 12% return for the second year; and a negative 9% for the third, what is the annual geometric return for Weingarten?

Correct AnswerverifiedShow Answer

The reward-to-volatility ratio is calculated by dividing the portfolio average excess return by its_____.

Correct AnswerverifiedShow Answer

Of the three methods to weight a market index, the ____ method involves summing the prices of the stocks in the index and dividing this sum by a constant in order to calculate an average price.

Correct AnswerverifiedShow Answer

Portfolio X had an average quarterly return of 5.2% with a standard deviation of 6.5%. The market had an average quarterly return of 6.1% with a standard deviation of 10.5%. The average riskfree rate was 3%. Using the reward-to-variability ratio,

Correct AnswerverifiedShow Answer

Which of the following statements accurately represents what clients can do to ensure that their portfolios reflect their own specific risk-return preferences?

Correct AnswerverifiedShow Answer

Measures of returns include such methods as ___which is used when deposits or withdrawals occur sometime between the beginning and end of the investment interval.

Correct AnswerverifiedD

A portfolio had a value of $50 million at the beginning of a quarter and a value of $47 million half way through the quarter. At this point, there was a $4 million withdrawal, and the portfolio value at the end of the quarter was $41 million. The time-weighted return for the quarter was

Correct AnswerverifiedShow Answer

The use of Treasury Bills to set the riskfree rate tends to

Correct AnswerverifiedShow Answer

Portfolio C has an ex post alpha of +1.7 and the slope of the SML is 2.4. This means the reward-to-volatility ratio for Portfolio C will be

Correct AnswerverifiedShow Answer

In selecting benchmark portfolios for comparison, the client should be certain that they represent

Correct AnswerverifiedC

If an investor buys a stock and holds it for three years, earning 15% for the first year; negative 15% for the second; and 12% for the third, what was the annual geometric return?

Correct AnswerverifiedShow Answer

A criticism of the S&P500 used as a market index would include which one of the following statements?

Correct AnswerverifiedShow Answer

Diversification of judgment where clients will split their assets among a number of mangers is done in order to avoid

Correct AnswerverifiedShow Answer

For a portfolio with superior performance, its characteristic line will

Correct AnswerverifiedShow Answer

For a portfolio, the returns for 4 quarters are 2%, -4%, -2%, 10%. The annual return that is more accurate than adding the four values together is

Correct AnswerverifiedShow Answer

The ex-post characteristic line is the result of a simple linear regression model expressing the relationship between the excess return on a security and the

Correct AnswerverifiedShow Answer

For the last five years the S&P 500 has had an average quarterly return of 4.5% and a standard deviation of 11.6%. If the average riskfree return was 2.2% per quarter, the slope of the S&P 500's CML is

Correct AnswerverifiedShow Answer

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D

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C

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