Deck 19: Performance Evaluation

Question 1

The essence of performance evaluation is

A) measuring after-tax dollars
B) associating a measure of risk with expected return
C) associating a measure of risk with realized return
D) using the geometric mean whenever possible

Answer 1

associating a measure of risk with realized return

Question 2

Expected utility is a ____ function of return and a ______ function of risk.

A) positive, positive
B) positive, negative
C) negative, positive
D) negative, negative

Answer 2

positive, negative

Question 3

The two mutual funds used in the text example are

A) Vanguard and Twentieth Century
B) Fidelity and Strong
C) Beacon Hill and Pennsylvania Mutual
D) 44 Wall Street and Mutual Shares

Answer 3

44 Wall Street and Mutual Shares

Question 4

_____ are more important than _____.

A) Dollars, percentages
B) Paper gains, paper losses
C) Monthly returns, annual returns
D) Dividends, capital gains

Question 5

Which measure calculates excess return per unit of total risk?

A) Jensen
B) Treynor
C) Sharpe
D) Geometric mean

Question 6

Which measure calculates excess return per unit of systematic risk?

A) Jensen
B) Treynor
C) Sharpe
D) Geometric mean

Question 7

A single security should be evaluated using the _____ measure.

A) Jensen
B) Treynor
C) Sharpe
D) geometric mean

Question 8

The best performance comes from

A) highest return per unit of risk
B) lowest risk
C) lowest long-term volatility
D) highest excess return

Question 9

Which of the following performance measures has statistical problems?

A) Jensen
B) Treynor
C) Sharpe
D) Geometric mean

Question 10

If a portfolio experiences cash withdrawals and deposits, the best performance measure is the

A) internal rate of return
B) payback period
C) Treynor measure
D) Sharpe measure

Question 11

A common finance assumption that is violated when options are included in a stock portfolio is

A) normality of returns
B) constant interest rates
C) constant beta
D) no taxes

Question 12

The incremental risk-adjusted return from options makes use of the _____ performance measure.

A) Jensen
B) Treynor
C) Sharpe
D) geometric mean

Question 13

The residual option spread makes use of the _____ performance measure.

A) Jensen
B) Treynor
C) Sharpe
D) geometric mean

Question 14

If a portfolio earned -10%, -20%, +40%, and +10% over the last four years, the arithmetic mean return per year is

A) 5%
B) 10%
C) 20%
D) 30%

Question 15

If a portfolio earned -10%, -20%, +40%, and +10% over the last four years, the geometric mean return per year is

A) -3.2%
B) 2.6%
C) 3.2%
D) 5.0%

Question 16

If a portfolio earned 5%, 45%, 20%, and 10% over the last four years, the arithmetic mean return per year is

A) 17%
B) 18%
C) 19%
D) 20%

Question 17

If a portfolio earned 5%, 45%, 20%, and 10% over the last four years, the geometric mean return per year is

A) 17%
B) 18%
C) 19%
D) 20%

Question 18

If the average realized return of a portfolio is 20% per year, the standard deviation of returns is 30%, the portfolio beta is 1.5, the average return of Treasury bills over the same period is 5% per year, and the average return on the market is 15% per year, the Sharpe measure is

A) 0.10
B) 0.25
C) 0.50
D) 0.75

Question 19

If the average realized return of a portfolio is 20% per year, the standard deviation of returns is 30%, the portfolio beta is 1.5, the average return of Treasury bills over the same period is 5% per year, and the average return on the market is 15% per year, the Treynor measure is

A) 0.10
B) 0.25
C) 0.50
D) 0.75

Question 20

If the average realized return of a portfolio is 20% per year, the standard deviation of returns is 30%, the portfolio beta is 1.5, the average return of Treasury bills over the same period is 5% per year, and the average return on the market is 15% per year, the Jensen measure is

A) 0
B) 5%
C) 10%
D) 20%

Question 21

If the average realized return of a portfolio is 27.5% per year, the standard deviation of returns is 50%, the portfolio beta is 1.25, the average return of Treasury bills over the same period is 2.5% per year, and the average return on the market is 12.5% per year, the Sharpe measure is

A) 0.20
B) 0.25
C) 0.50
D) 1.00

Question 22

If the average realized return of a portfolio is 27.5% per year, the standard deviation of returns is 50%, the portfolio beta is 1.25, the average return of Treasury bills over the same period is 2.5% per year, and the average return on the market is 12.5% per year, the Treynor measure is

A) 0.20
B) 0.25
C) 0.50
D) 1.00

Question 23

If the average realized return of a portfolio is 27.5% per year, the standard deviation of returns is 50%, the portfolio beta is 1.25, the average return of Treasury bills over the same period is 2.5% per year, and the average return on the market is 12.5% per year, the Jensen measure is

A) 0
B) 5%
C) 10%
D) 15%

Question 24

Suppose a portfolio has a beginning balance of $1 million and has a return of 10% the first period and 20% the second period. Then $500,000 is added to the account. The subsequent return is -9% in the third period and 25% return in the fourth period. Using the daily valuation method, what is the holding period return over the four periods?

A) 38%
B) 42%
C) 46%
D) 50%

Question 25

Suppose a portfolio has a beginning balance of $200,000 and earns $25,000 in the first period and $15,000 in the second period. Then $60,000 in new funds are added to the account. After that, the portfolio earns $20,000 in the third period and $40,000 in the fourth period. Using the daily valuation method, what is the holding period return over the four periods?

A) 30%
B) 33%
C) 44%
D) 50%