Deck 18: Evaluation of Portfolio Performance

Question 1

A test of bond performance over time indicated that bond portfolio managers are more consistent over time than equity managers.

Answer 1

False

Question 2

The portfolio performance measure that can be most affected by a benchmark error is the Sharpe measure.

Answer 2

False

Question 3

Overall performance is the total return above the risk free rate.

Answer 3

True

Question 4

A negative Treynor measure (negative T) for a portfolio always indicates that the portfolio would plot below the SML.

Question 5

The ranking differences between the Sharpe, Treynor and Jensen performance measures occur because of the differences in diversification.

Question 6

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.

Question 7

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

Question 8

The Sharpe measure examines the risk premium per unit of systematic risk.

Question 9

Sharpe's performance assumes that all portfolios are completely diversified.

Question 10

The Sharpe and Treynor measures complement each other and thus both should be used to measure portfolio performance.

Question 11

In evaluating bond performance, the Russell 3000 Index is an appropriate risk measure.

Question 12

The Jensen measure requires that each period's rates of return and risk-free rate be measured, rather than using the long-term averages as in the Treynor and Sharpe measures.

Question 13

Duration is considered a good measure of risk for a bond portfolio because it indicates the relative volatility of the bond or portfolio due to interest rate changes and also the rating of the bonds.

Question 14

Investors want their portfolio managers to completely diversify their portfolio, that is, eliminate all systematic risk.

Question 15

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

Question 16

An appropriate composite risk measure that indicates the relative price volatility for a bond compared to interest rate changes is the bond's yield to maturity.

Question 17

The policy effect is a difference in bond portfolio performance from that of a benchmark index due to a difference in duration.

Question 18

The typical proxy for the market portfolio is the S&P/TSX Composite Index because it is diversified and price weighted.

Question 19

The Sharpe and Treynor measures always give different rankings.

Question 20

Treynor's performance measure implicitly assumes a completely diversified portfolio.

Question 21

Sharpe's performance measure divides the portfolio's risk premium by the

A) Standard deviation of the rate of return.
B) Variance of the rate of return.
C) Slope of the fund's characteristic line.
D) Beta.
E) Risk free rate.

Question 22

Under the performance attribution analysis method, the ____ measures the manager's ability to form specific market segment portfolios that generate superior returns relative to the way in which the comparable market segment is defined in the benchmark portfolio weighted by the manager's actual market segment investment proportions.

A) Selection effect
B) Allocation effect
C) Distribution effect
D) Diversification effect
E) Attribution effect

Question 23

Portfolio managers who anticipate an increase in interest rates should

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.

Question 24

Selectivity measures how well a portfolio performed relative to a

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.

Question 25

Information ratio portfolio performance measures

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) None of the above.

Question 26

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.

Question 27

Relative return portfolio performance measures

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) None of the above.

Question 28

The Sharpe measure of portfolio performance divides the portfolio's risk premium by the portfolio's beta.

Question 29

A portfolio performance measurement technique that decomposes the return of a manager's holdings to a predetermined benchmark's returns and separates the difference into an allocation and selection is called

A) Immunization analysis.
B) Performance attribution analysis.
C) Tactical rankings.
D) Convexity utilization.
E) Duration matching attrition.

Question 30

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

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) None of the above (that is, all are requirements of a portfolio manager)

Question 31

Which measure of portfolio performance allows analysts to determine the statistical significance of abnormal returns?

A) Sharpe measure
B) Jensen measure
C) Fama measure
D) Information Ratio
E) Treynor measure

Question 32

The measure of performance which divides the portfolio's risk premium by the portfolio's beta is the

A) Sharpe measure.
B) Jensen measure.
C) Fama measure.
D) Information Ratio.
E) Treynor measure.

Question 33

If the return increases as more global investments with low correlation are added to the market portfolio, the efficient frontier moves

A) Up and right.
B) Up and left.
C) Down and right.
D) Down and left.
E) Up only.

Question 34

Excess return portfolio performance measures

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) None of the above.

Question 35

Under the performance attribution analysis method, the ______ measures the manager's decision to over- or underweight a particular market segment in terms of that segment's return performance relative to the overall return to the benchmark.

A) Selection effect
B) Allocation effect
C) Distribution effect
D) Diversification effect
E) Attribution effect

Question 36

Treynor developed the first composite measure of portfolio performance by introducing the capital market line, which defines the relationship between the return of a portfolio over time and the return for the market portfolio.

Question 37

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

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) None of the above.

Question 38

The most common manner of evaluating portfolio managers is a peer group comparison.

Question 39

A portfolio manager should be evaluated many times and in a variety of market environments before a final judgment is reached regarding his/her strengths and weaknesses.

Question 40

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

A) Zero slopes.
B) Slightly negative slopes.
C) Highly negative slopes.
D) Slightly positive slopes.
E) Highly positive slopes.

Question 41

Exhibit 18-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The portfolios identified below are being considered for investment. During the period under consideration Rf = .03. $\begin{array}{cccc}\text { Portfolio } & \text { Return } & \text { Beta } & \sigma \\\hline \text { A } & 0.16 & 1.0 & 0.15 \\\text { B } & 0.22 & 1.5 & 0.10 \\\text { C } & 0.11 & 0.6 & 0.08 \\\text { D } & 0.18 & 1.1 & 0.12\end{array}$

-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

Question 42

Which of the following statements about returns-based analysis or effective mix analysis is true?

A) This analysis compares the historical return pattern of the portfolio in question with the historical returns of various well-specified indexes.
B) This analysis uses sophisticated quadratic programming techniques to indicate what styles or style combinations were most similar to the portfolio's actual historical returns.
C) This analysis is based on the belief that the portfolio's current make-up will be a good predictor for the next period's returns.
D) Choices a and b
E) All of the above statements describe returns-based analysis or effective mix analysis

Question 43

A more recent adjustment to the Sharpe measurement for portfolio evaluation is

A) To divide the portfolio risk premium by total risk rather than the portfolio's beta.
B) To divide the portfolio risk premium by standard deviation rather than the portfolio's beta.
C) To divide the portfolio risk premium by the excess portfolio return rather than total risk.
D) To divide the excess portfolio return by the portfolio's standard deviation.
E) To divide the excess portfolio return by the portfolio's beta.

Question 44

Exhibit 18-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Consider the data presented below on three mutual funds and the market. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \\\text { BBB } & 1.05 & 5.0 & 18 & 3 \\\text { CCC } & 0.89 & 8.0 & 20 & 3 \\\text { Market } & 1.00 & 8.0 & 12 & 3\end{array}$

-Refer to Exhibit 18-3. Compute the Jensen Measure for the BBB fund.

A) 4.49
B) 2.74
C) 4.25
D) 5.55
E) 8.99

Question 45

Exhibit 18-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Consider the data presented below on three mutual funds and the market. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \\\text { BBB } & 1.05 & 5.0 & 18 & 3 \\\text { CCC } & 0.89 & 8.0 & 20 & 3 \\\text { Market } & 1.00 & 8.0 & 12 & 3\end{array}$

-Refer to Exhibit 18-3. Compute the Sharpe Measure for the AAA fund.

A) 4.49
B) 2.74
C) 1.57
D) 1.70
E) 1.27

Question 46

Exhibit 18-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The portfolios identified below are being considered for investment. During the period under consideration Rf = .03. $\begin{array}{cccc}\text { Portfolio } & \text { Return } & \text { Beta } & \sigma \\\hline \text { A } & 0.16 & 1.0 & 0.15 \\\text { B } & 0.22 & 1.5 & 0.10 \\\text { C } & 0.11 & 0.6 & 0.08 \\\text { D } & 0.18 & 1.1 & 0.12\end{array}$

-Refer to Exhibit 18-1. According to the Treynor Measure, which portfolio performed best?

A) A
B) B
C) C
D) D
E) Two portfolios are tied

Question 47

Which of the following statements concerning performance measures is false?

A) The Sharpe measure examines both unsystematic and systematic risk.
B) The Treynor measure examines systematic risk.
C) The Jensen measure examines systematic risk.
D) All three measures examine both unsystematic and systematic risk.
E) None of the above (that is, all statements are true)

Question 48

Exhibit 18-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration Rf = .04. $\begin{array}{cccc}\text { Portfolio } & \text { Return } & \text { Beta } & \sigma \\\hline \text { W } & 0.18 & 1.8 & 0.06 \\\text { X } & 0.21 & 0.9 & 0.10 \\\text { Y } & 0.13 & 0.7 & 0.03 \\\text { Z } & 0.16 & 1.5 & 0.07\end{array}$

-Refer to Exhibit 18-2. According to the Treynor Measure, which portfolio performed best?

A) W
B) X
C) Y
D) Z
E) Two portfolios are tied

Question 49

In the Characteristic Selectivity (CS) performance measure,

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. With the same aggregate investment characteristics as the security in question.
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.

Question 50

Bailey, Richards, and Tierney maintain that any useful benchmark should have the following characteristics.

A) Measurable.
B) Investable.
C) Value-weighted.
D) Choices a and b.
E) Choices a, b, and c.

Question 51

A disadvantage of the Treynor and Sharpe measures is that

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.

Question 52

In the evaluation of bond portfolio performance, the policy effect refers to

A) The difference in portfolio duration and index duration.
B) The extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
C) To short-run changes in the portfolio during a specific period.
D) The differential return from changing duration of the portfolio during a specific period.
E) None of the above.

Question 53

Components of overall portfolio performance include

A) Selectivity.
B) Manager's risk.
C) Security risk.
D) Choices a and b.
E) Choices a, b, and c.

Question 54

A portfolio's gross selectivity is made up of

A) Manager's risk.
B) Net selectivity.
C) Diversification.
D) Choices a and b.
E) Choices b and c.

Question 55

Which portfolio measurement uses the mean excess return in the numerator divided by the amount of residual risk that the investor incurred in pursuit of those excess returns?

A) Jensen measure.
B) Fama measure.
C) Sharpe measure.
D) Treynor ratio.
E) Information ratio.

Question 56

A manager's superior returns could have occurred due to:

A) an insightful asset allocation strategy, over weighting an asset class that earned high returns.
B) investing in undervalued sectors.
C) selecting individual securities that earned above average returns.
D) Choices a and c
E) All of the above.

Question 57

The cost of active management is the coefficient sER and it is sometimes referred to as

A) Market timing.
B) Reward for risk.
C) Excess reward.
D) Excess risk.
E) Tracking error.

Question 58

In the evaluation of bond portfolio performance, the interest rate anticipation effect refers to

A) The difference in portfolio duration and index duration.
B) The extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
C) To short-run changes in the portfolio during a specific period.
D) The differential return from changing duration of the portfolio during a specific period.
E) None of the above

Question 59

In the evaluation of bond portfolio performance, the analysis effect refers to

A) The difference in portfolio duration and index duration.
B) The extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
C) To short-run changes in the portfolio during a specific period.
D) The differential return from changing duration of the portfolio during a specific period.
E) None of the above

Question 60

Exhibit 18-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration Rf = .04. $\begin{array}{cccc}\text { Portfolio } & \text { Return } & \text { Beta } & \sigma \\\hline \text { W } & 0.18 & 1.8 & 0.06 \\\text { X } & 0.21 & 0.9 & 0.10 \\\text { Y } & 0.13 & 0.7 & 0.03 \\\text { Z } & 0.16 & 1.5 & 0.07\end{array}$

-Refer to Exhibit 18-2. Using the Sharpe Measure, which portfolio performed best?

A) W
B) X
C) Y
D) Z
E) Two portfolios are tied

Question 61

Exhibit 18-10
THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
Consider the following information for a portfolio manager $$\begin{array} { | l | c | c | c | c | } \hline & \begin{array} { c } \text { Policy } \\\text { Weight }\end{array} & \begin{array} { c } \text { Actual } \\\text { Weight }\end{array} & \begin{array} { c } \text { Index } \\\text { Returns }\end{array} & \begin{array} { c } \text { Actual } \\\text { Retums }\end{array} \\\hline \text { Stacks } & 0.65 & 0.7 & 0.11 & 0.12 \\\hline \text { Bonds } & 0.3 & 0.25 & 0.07 & 0.08 \\\hline \text { Cash } & 0.05 & 0.05 & 0.03 & 0.025 \\\hline\end{array}$$

-Refer to Exhibit 18-10. Calculate the percentage return that can be attributed to the asset allocation decision.

A) 0.105%
B) 0.925%
C) 0.20%
D) 0.96%
E) 0.94%

Question 62

Exhibit 18-9
THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
Consider the following information for four portfolios, the market and the risk free rate (RFR) $\begin{array}{|l|c|c|c|}\hline \text { ortfolio } & \text { Return } & \text { Beta } & \text { SD } \\\hline \text { A1 } & 0.15 & 1.25 & 0.182 \\\hline \text { A2 } & 0.1 & 0.9 & 0.223 \\\hline \text { A3 } & 0.12 & 1.1 & 0.138 \\\hline \text { A4 } & 0.08 & 0.8 & 0.125 \\\hline \text { Market } & 0.11 & 1 & 0.2 \\\hline \text { RFR } & 0.03 & 0 & 0 \\\hline\end{array}$

-Refer to Exhibit 18-9. Calculate the Sharpe Measure for each portfolio.

A) A1 = 0.40, A2 = 0.31, A3 = 0.65, A4 = 0.66
B) A1 = 0.31, A2 = 0.66, A3 = 0.65, A4 = 0.40
C) A1 = 0.66, A2 = 0.65, A3 = 0.31, A4 = 0.40
D) A1 = 0.66, A2 = 0.31, A3 = 0.65, A4 = 0.40
E) None of the above.

Question 63

Exhibit 18-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \mathrm{XXX} & 1.07 & 5.13 & 19 & 6 \\\text { YYY } & 1.02 & 4.28 & 17 & 6 \\\text { ZZZ } & 0.86 & 3.52 & 12 & 6 \\\text { Market } & 1.00 & 3.80 & 13 & 6\end{array}$

-Refer to Exhibit 18-5. Compute the Sharpe Measure for the XXX fund.

A) 6.98
B) 2.35
C) 2.53
D) 3.86
E) 1.72

Question 64

Exhibit 18-6
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI). $R_{CI} 0.17$ $\quad$ $\quad$ $B_{CI}=1.05$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{f}}=0.07$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}=0.12$

-Refer to Exhibit 18-6. Calculate CI's risk.

A) 0.1225
B) 0.1000
C) 0.0525
D) 0.0475
E) 0.0325

Question 65

Exhibit 18-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array}{c}\text { Weights }\\\begin{array} { c c } \text { Palicy } & \text { Actual } \\\hline 50 \% \text { stacks } & 60 \% \text { stacks } \\50 \% \text { bonds } & 40 \% \text { bonds } \\ \quad \quad \quad \quad\text { Retunns } \\\text { Index } & \text { Actual } \\\hline \text { g\% 5tacks } & 9 \% \text { 5tacks } \\5 \% \text { bonds } & 7 \% \text { bonds }\end{array}\end{array}$$

-Refer to Exhibit 18-8. Which of the following statements is true?

A) The portfolio manager earned an extra 0.3% because of a shift in allocation out of bonds and into stocks.
B) The portfolio manager earned an extra 0.3% because of a shift in allocation out of stocks and into bonds.
C) The portfolio manager earned an extra 6.5% because of a shift in allocation out of bonds and into stocks.
D) The portfolio manager earned an extra 6.5% because of a shift in allocation out of stocks and into bonds.
E) None of the above.

Question 66

Exhibit 18-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \mathrm{XXX} & 1.07 & 5.13 & 19 & 6 \\\text { YYY } & 1.02 & 4.28 & 17 & 6 \\\text { ZZZ } & 0.86 & 3.52 & 12 & 6 \\\text { Market } & 1.00 & 3.80 & 13 & 6\end{array}$

-Refer to Exhibit 18-5. Compute the Treynor Measure for the ZZZ fund.

A) 6.98
B) 2.35
C) 2.53
D) 3.86
E) 1.72

Question 67

Exhibit 18-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Given the following information evaluate the performance of Tyler Incorporated (TI). $R_{TI} 0.18$ $\quad$ $\quad$ $B_{TI}=1.06$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{f}}=0.06$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}=0.11$

-Refer to Exhibit 18-7. Calculate TI's overall performance.

A) 0.0113
B) 0.1200
C) 0.0670
D) 0.0530
E) 0.0696

Question 68

Exhibit 18-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Given the following information evaluate the performance of Tyler Incorporated (TI). $R_{TI} 0.18$ $\quad$ $\quad$ $B_{TI}=1.06$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{f}}=0.06$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}=0.11$

-Refer to Exhibit 18-7. Calculate TI's risk.

A) 0.0113
B) 0.1200
C) 0.0670
D) 0.0530
E) 0.0696

Question 69

Exhibit 18-9
THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
Consider the following information for four portfolios, the market and the risk free rate (RFR) $\begin{array}{|l|c|c|c|}\hline \text { ortfolio } & \text { Return } & \text { Beta } & \text { SD } \\\hline \text { A1 } & 0.15 & 1.25 & 0.182 \\\hline \text { A2 } & 0.1 & 0.9 & 0.223 \\\hline \text { A3 } & 0.12 & 1.1 & 0.138 \\\hline \text { A4 } & 0.08 & 0.8 & 0.125 \\\hline \text { Market } & 0.11 & 1 & 0.2 \\\hline \text { RFR } & 0.03 & 0 & 0 \\\hline\end{array}$

-Refer to Exhibit 18-9. Calculate the Treynor Measure for each portfolio.

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) None of the above.

Question 70

Exhibit 18-6
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI). $R_{CI} 0.17$ $\quad$ $\quad$ $B_{CI}=1.05$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{f}}=0.07$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}=0.12$

-Refer to Exhibit 18-6. Calculate CI's selectivity.

A) 0.1225
B) 0.1000
C) 0.0525
D) 0.0475
E) 0.0325

Question 71

Exhibit 18-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \\\text { BBB } & 1.00 & 4.04 & 15 & 6 \\\text { CCC } & 0.92 & 3.13 & 11 & 6 \\\text { Market } & 1.00 & 3.75 & 13 & 6\end{array}$

-Refer to Exhibit 18-4. Compute the Sharpe Measure for the AAA fund.

A) 2.01
B) 2.74
C) 2.91
D) 5.43
E) 1.72

Question 72

Exhibit 18-9
THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
Consider the following information for four portfolios, the market and the risk free rate (RFR) $\begin{array}{|l|c|c|c|}\hline \text { ortfolio } & \text { Return } & \text { Beta } & \text { SD } \\\hline \text { A1 } & 0.15 & 1.25 & 0.182 \\\hline \text { A2 } & 0.1 & 0.9 & 0.223 \\\hline \text { A3 } & 0.12 & 1.1 & 0.138 \\\hline \text { A4 } & 0.08 & 0.8 & 0.125 \\\hline \text { Market } & 0.11 & 1 & 0.2 \\\hline \text { RFR } & 0.03 & 0 & 0 \\\hline\end{array}$

-Refer to Exhibit 18-9. Calculate the Jensen alpha Measure for each portfolio.

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) None of the above.

Question 73

Exhibit 18-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Consider the data presented below on three mutual funds and the market. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \\\text { BBB } & 1.05 & 5.0 & 18 & 3 \\\text { CCC } & 0.89 & 8.0 & 20 & 3 \\\text { Market } & 1.00 & 8.0 & 12 & 3\end{array}$

-Refer to Exhibit 18-3. Compute the Treynor Measure for the CCC fund.

A) 14.7
B) 15.3
C) 19.1
D) 17.0
E) 12.7

Question 74

Exhibit 18-6
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI). $R_{CI} 0.17$ $\quad$ $\quad$ $B_{CI}=1.05$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{f}}=0.07$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}=0.12$

-Refer to Exhibit 18-6. Calculate CI's overall performance.

A) 0.1225
B) 0.1000
C) 0.0525
D) 0.0475
E) 0.0325

Question 75

Exhibit 18-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Given the following information evaluate the performance of Tyler Incorporated (TI). $R_{TI} 0.18$ $\quad$ $\quad$ $B_{TI}=1.06$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{f}}=0.06$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}=0.11$

-Refer to Exhibit 18-7. Calculate TI's selectivity.

A) 0.0113
B) 0.1200
C) 0.0687
D) 0.0530
E) 0.0696

Question 76

Exhibit 18-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \\\text { BBB } & 1.00 & 4.04 & 15 & 6 \\\text { CCC } & 0.92 & 3.13 & 11 & 6 \\\text { Market } & 1.00 & 3.75 & 13 & 6\end{array}$

-Refer to Exhibit 18-4. Compute the Jensen Measure for the BBB fund.

A) 2.10
B) 2.74
C) 5.43
D) 2.00
E) 1.65

Question 77

Exhibit 18-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \mathrm{XXX} & 1.07 & 5.13 & 19 & 6 \\\text { YYY } & 1.02 & 4.28 & 17 & 6 \\\text { ZZZ } & 0.86 & 3.52 & 12 & 6 \\\text { Market } & 1.00 & 3.80 & 13 & 6\end{array}$

-What is the Sharpe measure for the S&P 500 over the last ten years if the standard deviation was 8% and the return was 14%?

A) 1.55
B) 1.69
C) 1.75
D) 1.99
E) 2.09

Question 78

Exhibit 18-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \\\text { BBB } & 1.00 & 4.04 & 15 & 6 \\\text { CCC } & 0.92 & 3.13 & 11 & 6 \\\text { Market } & 1.00 & 3.75 & 13 & 6\end{array}$

-Refer to Exhibit 18-4. Compute the Treynor Measure for the CCC fund.

A) 5.43
B) 2.74
C) 2.19
D) 2.00
E) 1.65

Question 79

Exhibit 18-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array}{c}\text { Weights }\\\begin{array} { c c } \text { Palicy } & \text { Actual } \\\hline 50 \% \text { stacks } & 60 \% \text { stacks } \\50 \% \text { bonds } & 40 \% \text { bonds } \\ \quad \quad \quad \quad\text { Retunns } \\\text { Index } & \text { Actual } \\\hline \text { g\% 5tacks } & 9 \% \text { 5tacks } \\5 \% \text { bonds } & 7 \% \text { bonds }\end{array}\end{array}$$

-Refer to Exhibit 18-8. Which of the following statements is true?

A) Sector/security selection hurt the portfolio performance; returns were 1.4% less than if the manager invested the funds in stocks and bond indexes.
B) Sector/security selection improved the portfolio performance by 1.4%; each sector return was higher than for index value.
C) Sector/security selection hurt the portfolio performance; returns were 6.8% less than if the manager invested the funds in stocks and bond indexes.
D) Sector/security selection improved the portfolio performance by 6.8%; each sector return was higher than for index return.
E) None of the above.

Question 80

Exhibit 18-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The data presented below has been collected at this point in time. $\begin{array}{llccc}\text { Fund } & \text { Beta } & \begin{array}{c}\text { Standard } \\\text { Deviation }(\%)\end{array} & \text { Return }(\%) & \mathrm{R}_{\mathrm{f}}(\%) \\\hline \mathrm{XXX} & 1.07 & 5.13 & 19 & 6 \\\text { YYY } & 1.02 & 4.28 & 17 & 6 \\\text { ZZZ } & 0.86 & 3.52 & 12 & 6 \\\text { Market } & 1.00 & 3.80 & 13 & 6\end{array}$

-Refer to Exhibit 18-5. Compute the Jensen Measure for the YYY fund.

A) 6.98
B) 2.35
C) 2.53
D) 3.86
E) 1.72