Question 1

The following data are available relating to the performance of Tiger Fund and the market portfolio:  Tiger  Market  Portfolio  Average return 18%15% Standard deviations of returns 25%20% Beta 1.251.00 Residual standard deviation 2%0%\begin{array}{lcc} & 	ext {Tiger } & 	ext { Market } \  &&	ext { Portfolio }\	ext { Average return } & 18 \% & 15\% \	ext { Standard deviations of returns } & 25\% & 20\% \	ext { Beta } & 1.25 & 1.00 \	ext { Residual standard deviation } &2 \% & 0 \%\end{array} Average return  Standard deviations of returns  Beta  Residual standard deviation ​Tiger 18%25%1.252%​ Market  Portfolio 15%20%1.000%​  
 The risk-free return during the sample period was 7%.
Calculate Jensen's measure of performance for Tiger Fund.

Accepted Answer

A)   1.00%
B)   8.80%
C)   44.00%
D)   50.00% E) A) and C)
F) All of the above

Question 2

The following data are available relating to the performance of Tiger Fund and the market portfolio:  Tiger  Market  Portfolio  Average return 18%15% Standard deviations of returns 25%20% Beta 1.251.00 Residual standard deviation 2%0%\begin{array}{lcc} & 	ext {Tiger } & 	ext { Market } \  &&	ext { Portfolio }\	ext { Average return } & 18 \% & 15\% \	ext { Standard deviations of returns } & 25\% & 20\% \	ext { Beta } & 1.25 & 1.00 \	ext { Residual standard deviation } &2 \% & 0 \%\end{array} Average return  Standard deviations of returns  Beta  Residual standard deviation ​Tiger 18%25%1.252%​ Market  Portfolio 15%20%1.000%​

The risk-free return during the sample period was 7%.
What is the information ratio measure of performance evaluation for Tiger Fund?

Accepted Answer

A)   1.00%
B)   8.80%
C)   44.00%
D)   50.00% E) A) and B)
F) C) and D)

Question 3

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%F) B) and D)
G) B) and E)

Question 4

In a particular year, Roll Tide Mutual Fund earned a return of 15% by making the following investments in the following asset classes:   Weight  Return  Bonds 10%6% Stocks 90%16%\begin{array}{cc}&  	ext { Weight  } & 	ext { Return }\ 	ext { Bonds } &10\%&6\%\ 	ext { Stocks } &90\%&16\%\\end{array} Bonds  Stocks ​ Weight 10%90%​ Return 6%16%​

The return on a bogey portfolio was 10%, calculated as follows:
  Weight  Return  Bonds (Lehman Brother Index)  50%5% Stacks (S&P 500 Index)  50%15%\begin{array}{cc}&  	ext { Weight  } & 	ext { Return }\ 	ext { Bonds (Lehman Brother Index)  } &50\%&5\%\ 	ext { Stacks (S\&P 500 Index)  } &50\%&15\%\\end{array} Bonds (Lehman Brother Index)   Stacks (S&P 500 Index)  ​ Weight 50%50%​ Return 5%15%​

The contribution of selection within markets to total abnormal return was

Accepted Answer

A)   1%.
B)   3%.
C)   4%.
D)   5%. E) A) and C)
F) All of the above

Question 5

The following data are available relating to the performance of Tiger Fund and the market portfolio:  Tiger  Market  Portfolio  Average return 18%15% Standard deviations of returns 25%20% Beta 1.251.00 Residual standard deviation 2%0%\begin{array}{lcc} & 	ext {Tiger } & 	ext { Market } \  &&	ext { Portfolio }\	ext { Average return } & 18 \% & 15\% \	ext { Standard deviations of returns } & 25\% & 20\% \	ext { Beta } & 1.25 & 1.00 \	ext { Residual standard deviation } &2 \% & 0 \%\end{array} Average return  Standard deviations of returns  Beta  Residual standard deviation ​Tiger 18%25%1.252%​ Market  Portfolio 15%20%1.000%​  
 The risk-free return during the sample period was 7%.
Calculate Treynor's measure of performance for Tiger Fund.

Accepted Answer

A)   1.00%
B)   8.80%
C)   44.00%
D)   50.00% E) B) and C)
F) C) and D)

Question 6

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio:   Monarch  Market  Portfolio  Average return 16%12% Standard deviations of returns 26%22% Beta 1.151.00 Residual standard deviation 1%0%\begin{array}{lcc} & 	ext { Monarch } & 	ext { Market } \ &&	ext { Portfolio }\	ext { Average return } & 16 \% & 12\% \	ext { Standard deviations of returns } & 26\% & 22\% \	ext { Beta } & 1.15 & 1.00 \	ext { Residual standard deviation } &1 \% & 0 \%\end{array} Average return  Standard deviations of returns  Beta  Residual standard deviation ​ Monarch 16%26%1.151%​ Market  Portfolio 12%22%1.000%​ 
 The risk-free return during the sample period was 4%.
Calculate Sharpe's measure of performance for Monarch Stock Fund.

Accepted Answer

A)   1%
B)   46%
C)   44%
D)   50%
E)   None of the options are correct. F) None of the above
G) B) and D)

Question 7

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%.F) B) and C)
G) A) and B) C

Question 8

The comparison universe is

Accepted Answer

A)   a concept found only in astronomy.
B)   the set of all mutual funds in the world.
C)   the set of all mutual funds in the U.S.
D)   a set of mutual funds with similar risk characteristics to your mutual fund.
E)   None of the options are correct.F) All of the above
G) B) and D)

Question 9

Suppose you purchase one share of the stock of VM Corporation at the beginning of year 1 for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share)  and sell the shares for $36.45 each. The dollar-weighted return on your investment is

Accepted Answer

A)   −1.75%.
B)   4.08%.
C)   8.53%.
D)   8.00%.
E)   12.35%.F) A) and B)
G) C) and E)

Question 10

Investing in a mutual fund because of positive historical performance is a form of ___________,

Accepted Answer

A)   trend analysis.
B)   fundamental analysis.
C)   portfolio bias.
D)   selection bias.
E)   None of the options are correct.F) C) and D)
G) B) and D)

Question 11

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

Accepted Answer

A)   is better than the performance of Arc Fund.
B)   is the same as the performance of Arc Fund.
C)   is poorer than the performance of Arc Fund.
D)   cannot be measured as there are no data on the alpha of the portfolio.E) A) and B)
F) A) and C) B

Question 12

In a particular year, Hoosier Mutual Fund earned a return of 1% by making the following investments in asset classes:   Weight  Return  Bonds 20%5% Stocks 80%0%\begin{array}{lcr} & 	ext { Weight } & 	ext { Return } \	ext { Bonds } & 20 \% & 5 \% \	ext { Stocks } & 80 \% & 0 \%\end{array} Bonds  Stocks ​ Weight 20%80%​ Return 5%0%​ 
 The return on a bogey portfolio was 2%, calculated from the following information.
  Weight  Return  Bonds (Lehman Brother Index)  50%5% Stacks (S&P 500 Index)  50%−1%\begin{array}{cc}&  	ext { Weight  } & 	ext { Return }\ 	ext { Bonds (Lehman Brother Index)  } &50\%&5\%\ 	ext { Stacks (S\&P 500 Index)  } &50\%&-1\%\\end{array} Bonds (Lehman Brother Index)   Stacks (S&P 500 Index)  ​ Weight 50%50%​ Return 5%−1%​

The total abnormal return on the Hoosier Fund's managed portfolio was

Accepted Answer

A)   1.80%.
B)   1.00%
C)   0.80%.
D)   1.00%. E) A) and C)
F) B) and D)

Question 13

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 are the data for the S&P 500 Index.  Average ReturnResidual  Standard Deviation  Beta  Fund A 24%30%1.5Fund B 12%10%0.5 Fund C22%20%1.0S&P 50018%16%1.0\begin{array}{cc}  &	ext {Average ReturnResidual   } &	ext { Standard Deviation  }&	ext { Beta }\ 	ext { Fund A } &24\%&30\%&1.5\ 	ext {Fund B  } &12\%&10\%&0.5\ 	ext { Fund C} &22\%&20\%&1.0\	ext {S\&P 500}&18\%&16\%&1.0\end{array} Fund A Fund B  Fund CS&P 500​Average ReturnResidual 24%12%22%18%​ Standard Deviation 30%10%20%16%​ Beta 1.50.51.01.0​

The fund with the highest Sharpe measure is

Accepted Answer

A)   Fund A.
B)   Fund B.
C)   Fund C.
D)   Funds A and B (tied for highest) .
E)   Funds A and C (tied for highest) . F) C) and D)
G) B) and D)

Question 14

Risk-adjusted mutual fund performance measures have decreased in popularity because

Accepted Answer

A)   in nearly efficient markets, it is extremely difficult for portfolio managers to outperform the market.
B)   the measures usually result in negative performance results for the portfolio managers.
C)   the high rates of return earned by the mutual funds have made the measures useless.
D)   in nearly efficient markets, it is extremely difficult for portfolio managers to outperform the market, and the measures usually result in negative performance results for the portfolio managers.
E)   None of the options are correct.F) A) and D)
G) A) and E)

Question 15

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

Accepted Answer

A)   is better than the performance of Wild Cat Fund.
B)   is the same as the performance of Wild Cat Fund.
C)   is poorer than the performance of Wild Cat Fund.
D)   cannot be measured as there are no data on the alpha of the portfolio.
E)   None of the options are correct.F) A) and E)
G) B) and D)

Question 16

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.F) A) and B)
G) All of the above

Question 17

Henriksson (1981)  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 changeF) None of the above
G) A) and D)

Question 18

Suppose two portfolios have the same average return and the same standard deviation of returns, but portfolio A has a higher 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 are no data on the alpha of the portfolio.
E)   None of the options are correct.F) C) and D)
G) B) and E)

Question 19

In a particular year, Roll Tide Mutual Fund earned a return of 15% by making the following investments in the following asset classes:   Weight  Return  Bonds 10%6% Stocks 90%16%\begin{array}{cc}&  	ext { Weight  } & 	ext { Return }\ 	ext { Bonds } &10\%&6\%\ 	ext { Stocks } &90\%&16\%\\end{array} Bonds  Stocks ​ Weight 10%90%​ Return 6%16%​

The return on a bogey portfolio was 10%, calculated as follows:
  Weight  Return  Bonds (Lehman Brother Index)  50%5% Stacks (S&P 500 Index)  50%15%\begin{array}{cc}&  	ext { Weight  } & 	ext { Return }\ 	ext { Bonds (Lehman Brother Index)  } &50\%&5\%\ 	ext { Stacks (S\&P 500 Index)  } &50\%&15\%\\end{array} Bonds (Lehman Brother Index)   Stacks (S&P 500 Index)  ​ Weight 50%50%​ Return 5%15%​

The contribution of asset allocation across markets to the total abnormal return was

Accepted Answer

A)   1%.
B)   3%.
C)   4%.
D)   5%. E) None of the above
F) C) and D)

Question 20

Suppose you purchase one share of the stock of VM Corporation at the beginning of year 1 for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share)  and sell the shares for $36.45 each. The time-weighted return on your investment is

Accepted Answer

A)   −1.75%.
B)   4.08%.
C)   6.74%.
D)   11.46%.
E)   12.35%.F) A) and C)
G) None of the above C

Exam 24: Portfolio Performance Evaluation

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

Correct Answer
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C

The comparison universe is

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Investing in a mutual fund because of positive historical performance is a form of ___________,

Correct Answer
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Suppose two portfolios have the same average return and the same standard deviation of returns, but Roll Tide Fund has a higher beta than Arc Fund. According to the Sharpe measure, the performance of Roll Tide Fund

Correct Answer
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B

Correct Answer
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Risk-adjusted mutual fund performance measures have decreased in popularity because

Correct Answer
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Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a higher beta than Wild Cat Fund. According to the Treynor measure, the performance of Buckeye Fund

Correct Answer
verified

The Modigliani M² measure and the Treynor T² measure

Correct Answer
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Henriksson (1981) found that, on average, betas of funds __________ during market advances.

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

Correct Answer
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Correct Answer
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C

Exam 24: Portfolio Performance Evaluation

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

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Correct AnswerverifiedC

The comparison universe is

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Investing in a mutual fund because of positive historical performance is a form of ___________,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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Risk-adjusted mutual fund performance measures have decreased in popularity because

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Modigliani M2 measure and the Treynor T2 measure

Correct AnswerverifiedShow Answer

Henriksson (1981) found that, on average, betas of funds __________ during market advances.

Correct AnswerverifiedShow Answer

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

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Correct AnswerverifiedC

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C

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B

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The Modigliani M² measure and the Treynor T² measure

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C