Question 1

The CFA Institute encourages managers to disclose the volatility of the composite return and to identify benchmarks that parallel the risk or investment style that the composite tracks.

Accepted Answer

A) True 
 B)False

Question 2

Portfolio managers are often evaluated using a boxplot of returns for a universe of investors over a specific period of time which is known as a(n)

Accepted Answer

A)   return adjusted comparison.
B)   efficient frontier comparison.
C)   time plot comparison.
D)   peer group comparison.
E)   None of these are correct.F) A) and C)
G) A) and B)

Question 3

Funds with low levels of diversification tend to "beat the market."

Accepted Answer

A) True 
 B)False

Question 4

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
Consider the following information for four portfolios, the market, and the risk-free rate (RFR) :
 
-Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio.

Accepted Answer

A)   A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02
B)   A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014
C)   A1 = 0.02, A2 = - 0.002, A3 = 0.002, A4 = -0.014
D)   A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
E)   A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14F) A) and B)
G) A) and C)

Question 5

Selectivity measures how well a portfolio performed relative to a

Accepted Answer

A)   market portfolio (S&P 400) .
B)   portfolio of the same securities in the previous period.
C)   naively selected portfolio of equal risk.
D)   naively selected portfolio of equal return.
E)   world market portfolio.F) A) and C)
G) A) and E)

Question 6

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
The portfolios identified below are being considered for investment. During the period under consideration, Rf = .03.
 f = .03.    -Refer to Exhibit 18.1. Using the Sharpe Measure, which portfolio performed best? A)  A B)  B C)  C D)  D E)  Two portfolios are tied." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 18.1. Using the Sharpe Measure, which portfolio performed best?

Accepted Answer

A)   A
B)   B
C)   C
D)   D
E)   Two portfolios are tied.F) C) and D)
G) A) and C)

Question 7

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
Consider the following information for four portfolios, the market, and the risk-free rate (RFR) :
 
-Refer to Exhibit 18.6. Calculate the Treynor Measure for each portfolio.

Accepted Answer

A)   A1 = 0.0625, A2 = 0.0778, A3 = 0.0818, A4 = 0.096
B)   A1 = 0.096, A2 = 0.0778, A3 = 0.0818, A4 = 0.0625
C)   A1 = 0.096, A2 = 0.0818, A3 = 0.0778, A4 = 0.0625
D)   A1 = 0.0778, A2 = 0.096, A3 = 0.0818, A4 = 0.0625
E)   A1 = 0.086, A2 = 0.096, A3 = 0.0818, A4 = 0.0625F) A) and B)
G) B) and C)

Question 8

Attribution analysis separates a portfolio manager's performance into an allocation effect and selection effect.

Accepted Answer

A) True 
 B)False

Question 9

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
The data presented below has been collected at this point in time.
 
-Refer to Exhibit 18.4. Compute the Sharpe Measure for the AAA fund.

Accepted Answer

A)   2.01
B)   2.74
C)   2.91
D)   5.43
E)   1.72F) B) and D)
G) C) and D)

Question 10

Treynor showed that rational, risk-averse investors always prefer portfolio possibility lines that have

Accepted Answer

A)   zero slopes.
B)   slightly negative slopes.
C)   highly negative slopes.
D)   highly positive slopes.
E)   highly positive slopesF) D) and E)
G) A) and C)

Question 11

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
Given the following information evaluate the performance of Cloud Incorporated (CI) .
 
-Refer to Exhibit 18.9. Calculate CI's overall performance.

Accepted Answer

A)   0.1225
B)   0.1000
C)   0.0525
D)   0.0475
E)   0.0325F) A) and D)
G) A) and E)

Question 12

Money-weighted returns set the present value of future cash flows (including future investment contributions and withdrawals) equal to the level of the initial investment.

Accepted Answer

A) True 
 B)False

Question 13

For a poorly diversified portfolio the appropriate measure of portfolio performance would be

Accepted Answer

A)   the Treynor measure because it evaluates portfolio performance on the basis of return and diversification.
B)   the Sharpe measure because it evaluates portfolio performance on the basis of return and diversification.
C)   the Treynor measure because it uses standard deviation as the risk measure.
D)   the Sharpe measure because it uses beta as the risk measure.
E)   the Jensen measure because it measures the risk-adjusted performance.F) D) and E)
G) B) and C)

Question 14

Information ratio portfolio performance measures

Accepted Answer

A)   adjust portfolio risk to match benchmark risk.
B)   compare portfolio returns to expected returns under CAPM.
C)   evaluate portfolio performance on the basis of return per unit of risk.
D)   indicate historic average differential return per unit of historic variability of differential return.
E)   the average market beta per unit of risk.F) B) and D)
G) A) and C)

Question 15

Two desirable attributes of a portfolio manager's performance are the ability to derive above-average returns for a given risk class and the ability to time the market.

Accepted Answer

A) True 
 B)False

Question 16

A disadvantage of the Treynor and Sharpe measures is that

Accepted Answer

A)   they produce absolute performance rankings.
B)   the beta and standard deviation are static.
C)   they are both difficult to compute.
D)   they produce relative performance rankings.
E)   they give very different measurements for well-diversified portfolios.F) All of the above
G) None of the above

Question 17

The major requirements of a portfolio manager include the following, EXCEPT

Accepted Answer

A)   follow the client's policy statement.
B)   completely diversify the portfolio to eliminate all unsystematic risk.
C)   the ability to derive above-average risk adjusted returns.
D)   completely diversify the portfolio to eliminate all systematic risk.
E)   deliver on expectations and produce an additional alpha component.F) A) and D)
G) C) and D)

Question 18

A peer group comparison collects the returns produced by a representative universe of investors over a specific period of time and displays them in a simple boxplot format.

Accepted Answer

A) True 
 B)False

Question 19

Portfolio managers who anticipate an increase in interest rates should

Accepted Answer

A)   act to keep the duration constant.
B)   decrease the portfolio duration.
C)   increase the portfolio duration.
D)   assume higher risk in the market.
E)   invest in junk bonds.F) B) and D)
G) A) and B)

Question 20

In the Characteristic Selectivity (CS)  performance measure,

Accepted Answer

A)   portfolio performance is measured by assessing the quality of services provided by money managers by looking at adjustments made to the content of their portfolios.
B)   portfolio performance is measured by examining both unsystematic and systematic risk.
C)   portfolio performance is measured by comparing the returns of each stock in the portfolio to the return of a benchmark portfolio.
D)   portfolio performance is measured on the basis of return per unit of risk.
E)   portfolio performance is measured on the basis of historic average differential return per unit of historic variability of differential return.F) None of the above
G) All of the above

Exam 18: Evaluation of Portfolio Performance

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Given the following information evaluate the performance of Cloud Incorporated (CI) . -Refer to Exhibit 18.9. Calculate CI's overall performance.

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Two desirable attributes of a portfolio manager's performance are the ability to derive above-average returns for a given risk class and the ability to time the market.

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The data presented below has been collected at this point in time. -Refer to Exhibit 18.4. Compute the Sharpe Measure for the AAA fund.

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Attribution analysis separates a portfolio manager's performance into an allocation effect and selection effect.

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Money-weighted returns set the present value of future cash flows (including future investment contributions and withdrawals) equal to the level of the initial investment.

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In the Characteristic Selectivity (CS) performance measure,

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information for four portfolios, the market, and the risk-free rate (RFR) : -Refer to Exhibit 18.6. Calculate the Treynor Measure for each portfolio.

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A peer group comparison collects the returns produced by a representative universe of investors over a specific period of time and displays them in a simple boxplot format.

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Funds with low levels of diversification tend to "beat the market."

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Selectivity measures how well a portfolio performed relative to a

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Portfolio managers who anticipate an increase in interest rates should

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For a poorly diversified portfolio the appropriate measure of portfolio performance would be

Correct AnswerverifiedShow Answer

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information for four portfolios, the market, and the risk-free rate (RFR) : -Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio.

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. During the period under consideration, Rf = .03. -Refer to Exhibit 18.1. Using the Sharpe Measure, which portfolio performed best?

Correct AnswerverifiedShow Answer

Portfolio managers are often evaluated using a boxplot of returns for a universe of investors over a specific period of time which is known as a(n)

Correct AnswerverifiedShow Answer

A disadvantage of the Treynor and Sharpe measures is that

Correct AnswerverifiedShow Answer

The CFA Institute encourages managers to disclose the volatility of the composite return and to identify benchmarks that parallel the risk or investment style that the composite tracks.

Correct AnswerverifiedShow Answer

The major requirements of a portfolio manager include the following, EXCEPT

Correct AnswerverifiedShow Answer

Treynor showed that rational, risk-averse investors always prefer portfolio possibility lines that have

Correct AnswerverifiedShow Answer

Information ratio portfolio performance measures

Correct AnswerverifiedShow Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The portfolios identified below are being considered for investment. During the period under consideration, R_f = .03. -Refer to Exhibit 18.1. Using the Sharpe Measure, which portfolio performed best?

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