Question 1

Exhibit 25.2
Use the Information Below for the Following Problem(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration Rf = .04.
 $$\begin{array} { c c c c } 
\text { Partilio } & \text { Return } & \text { Beta } & \text { σ } \
\hline W & 0.18 & 1.8 & 0.06 \
\mathbf { X } & 0.21 & 0.9 & 0.10 \
\mathbf { Y } & 0.13 & 0.7 & 0.03 \
Z & 0.16 & 1.5 & 0.07
\end{array}$$
-Refer to Exhibit 25.2.Using the Sharpe Measure,which portfolio performed best?

Accepted Answer

Portfolio Y has the highest Sharpe Measure of (0.13 - 0.04) / 0.03 = 3.00.

Question 2

Exhibit 25.1
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.
 $$\begin{array} { c c c c } 
\text { Partfolid } & \text { Return } & \text { Beta } & \text { σ } \
\hline \text { A } & 0.16 & 1 . 0 & 0.15 \
B & 0.22 & 1.5 & 0.10 \
\text { C } & 0.11 & 0.6 & 0.08 \
D & 0.18 & 1.1 & 0.12
\end{array}$$
-Refer to Exhibit 25.1.Using the Sharpe Measure,which portfolio performed best?

Accepted Answer

Portfolio B has the highest Sharpe Measure, which is calculated as (Rp - Rf) / σ.

Question 3

Exhibit 25.6
Use the Information Below for the Following Problem(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
 $$\mathrm { R } _ { \mathrm { CI } } = 0.17 \quad \mathrm {~B} _ { \mathrm { GI } } = 1.05 \quad \mathrm { R } _ { \mathrm { I } } = 0.07 \quad \mathrm { R } _ { \mathrm { m } } = 0.12$$
-Refer to Exhibit 25.6.Calculate CI's selectivity.

Accepted Answer

Selectivity = RCI - Rₓ(Bₐ)
where Rₓ(Bₐ)= Rf + BCI(Rm - Rf)= 0.07 + 1.05(0.12 - 0.07)= 0.1225
Selectivity = 0.17 - 0.1225 = 0.0475

Question 4

Exhibit 25.2
Use the Information Below for the Following Problem(S)
The portfolios identified below are being considered for investment. Assume that during the period under consideration Rf = .04.
 $$\begin{array} { c c c c } 
\text { Partilio } & \text { Return } & \text { Beta } & \text { σ } \
\hline W & 0.18 & 1.8 & 0.06 \
\mathbf { X } & 0.21 & 0.9 & 0.10 \
\mathbf { Y } & 0.13 & 0.7 & 0.03 \
Z & 0.16 & 1.5 & 0.07
\end{array}$$
-Refer to Exhibit 25.2.According to the Treynor Measure,which portfolio performed best?

Accepted Answer

The Treynor Measure is calculated as (Return - Risk-free rate) / Beta. Portfolio X has the highest Treynor Measure, indicating it performed best relative to its beta.

Question 5

Which of the following performance measures is the most rigorous risk-adjustment process separating systematic and unsystematic risk?

Accepted Answer

Jensen's Alpha is the most rigorous risk-adjustment process as it separates systematic and unsystematic risk. It calculates the excess return of the portfolio over the expected return based on the portfolio's beta (systematic risk), which is a measure of its correlation with the market. The excess return that cannot be explained by the portfolio's beta represents the portfolio's alpha, which is the manager's skill in generating returns from unsystematic risk. Treynor ratio and Sharpe ratio only measure risk-adjusted return based on systematic risk, while Information ratio measures risk-adjusted return based on active risk.

Question 6

Exhibit 25.5
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l c c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { XOX } & 1.07 & 5.13 & 19 & 6 \
\text { YYY } & 1.02 & 4.28 & 17 & 6 \
\text { ZZZ } & 0.86 & 3.52 & 12 & 6
\end{array}$$
-Refer to Exhibit 25.5.Compute the Jensen Measure for the YYY fund.

Accepted Answer

(17 - 6)- [1.02 (13.0 - 6.0)] = 3.86

Question 7

Exhibit 25.3
Use the Information Below for the Following Problem(S)
Consider the data presented below on three mutual funds and the market.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \
\text { BBB } & 1.05 & 5.0 & 18 & 3 \
\text { CCC } & 0.89 & 8.0 & 20 & 3 \
\text { Market } & 1.00 & 8.0 & 12 & 3
\end{array}$$
-Refer to Exhibit 25.3.Compute the Treynor Measure for the CCC fund.

Accepted Answer

(20 - 3)¸ 0.89 = 14.7

Question 8

Exhibit 25.4
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Deviation(4) } & \text { Return(4) } & \text { Re (46) } \
\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \
\mathrm { BBB } & 1.00 & 4.04 & 15 & 6 \
\text { CCC } & 0.92 & 3.13 & 11 & 6 \
\text { Market } & 1.00 & 375 & 13 & 6
\end{array}$$
-Refer to Exhibit 25.4.Compute the Treynor Measure for the CCC fund.

Accepted Answer

(11 - 6)¸ 0.92 = 5.43

Question 9

Exhibit 25.5
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l c c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { XOX } & 1.07 & 5.13 & 19 & 6 \
\text { YYY } & 1.02 & 4.28 & 17 & 6 \
\text { ZZZ } & 0.86 & 3.52 & 12 & 6
\end{array}$$
-Refer to Exhibit 25.5.Compute the Sharpe Measure for the XXX fund.

Accepted Answer

(19 - 6)¸ 5.13 = 2.53

Question 10

Exhibit 25.1
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.
 $$\begin{array} { c c c c } 
\text { Partfolid } & \text { Return } & \text { Beta } & \text { σ } \
\hline \text { A } & 0.16 & 1 . 0 & 0.15 \
B & 0.22 & 1.5 & 0.10 \
\text { C } & 0.11 & 0.6 & 0.08 \
D & 0.18 & 1.1 & 0.12
\end{array}$$
-Refer to Exhibit 25.1.According to the Treynor Measure,which portfolio performed best?

Accepted Answer

The answer of Exhibit 25.1
Use the Information Below for the...

Question 11

Exhibit 25.6
Use the Information Below for the Following Problem(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
 $$\mathrm { R } _ { \mathrm { CI } } = 0.17 \quad \mathrm {~B} _ { \mathrm { GI } } = 1.05 \quad \mathrm { R } _ { \mathrm { I } } = 0.07 \quad \mathrm { R } _ { \mathrm { m } } = 0.12$$
-Refer to Exhibit 25.6.Calculate CI's overall performance.

Accepted Answer

Overall Performance = RCI - Rf = 0.17 - 0.07 = 0.10

Question 12

Exhibit 25.6
Use the Information Below for the Following Problem(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
 $$\mathrm { R } _ { \mathrm { CI } } = 0.17 \quad \mathrm {~B} _ { \mathrm { GI } } = 1.05 \quad \mathrm { R } _ { \mathrm { I } } = 0.07 \quad \mathrm { R } _ { \mathrm { m } } = 0.12$$
-Refer to Exhibit 25.6.Calculate CI's risk.

Accepted Answer

Risk = Rₓ(Bₐ)- Rf = 0.1225 - 0.07 = 0.0525

Question 13

Exhibit 25.5
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l c c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { XOX } & 1.07 & 5.13 & 19 & 6 \
\text { YYY } & 1.02 & 4.28 & 17 & 6 \
\text { ZZZ } & 0.86 & 3.52 & 12 & 6
\end{array}$$
-Refer to Exhibit 25.5.Compute the Treynor Measure for the ZZZ fund.

Accepted Answer

(12 - 6)¸ 0.86 = 6.98

Question 14

Exhibit 25.3
Use the Information Below for the Following Problem(S)
Consider the data presented below on three mutual funds and the market.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \
\text { BBB } & 1.05 & 5.0 & 18 & 3 \
\text { CCC } & 0.89 & 8.0 & 20 & 3 \
\text { Market } & 1.00 & 8.0 & 12 & 3
\end{array}$$
-Refer to Exhibit 25.3.Compute the Sharpe Measure for the AAA fund.

Accepted Answer

(14 - 3)¸ 7 = 1.57

Question 15

Exhibit 25.3
Use the Information Below for the Following Problem(S)
Consider the data presented below on three mutual funds and the market.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { AAA } & 0.75 & 7.0 & 14 & 3 \
\text { BBB } & 1.05 & 5.0 & 18 & 3 \
\text { CCC } & 0.89 & 8.0 & 20 & 3 \
\text { Market } & 1.00 & 8.0 & 12 & 3
\end{array}$$
-Refer to Exhibit 25.3.Compute the Jensen Measure for the BBB fund.

Accepted Answer

(18 - 3)- [1.05 (12.0 - 3.0)] = 5.55

Question 16

Exhibit 25.5
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l c c c c } 
\text { Fund } & \text { Beta } & \text { Devintion (\%) } & \text { Return (\%) } & \text { R } _ { ( } ( \% ) \
\hline \text { XOX } & 1.07 & 5.13 & 19 & 6 \
\text { YYY } & 1.02 & 4.28 & 17 & 6 \
\text { ZZZ } & 0.86 & 3.52 & 12 & 6
\end{array}$$
-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%?

Accepted Answer

14 ¸ 8 = 1.75

Question 17

Exhibit 25.4
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Deviation(4) } & \text { Return(4) } & \text { Re (46) } \
\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \
\mathrm { BBB } & 1.00 & 4.04 & 15 & 6 \
\text { CCC } & 0.92 & 3.13 & 11 & 6 \
\text { Market } & 1.00 & 375 & 13 & 6
\end{array}$$
-Refer to Exhibit 25.4.Compute the Sharpe Measure for the AAA fund.

Accepted Answer

(16 - 6)¸ 4.98 = 2.01

Question 18

Suppose the expected return for the market portfolio and risk-free rate are 13% and 3% respectively.Stocks A,B,and C have Treynor measures of 0.24,0.16,and 0.11,respectively.Based on this information an investor should

Accepted Answer

Treynor measure = (Portfolio Return - Risk-Free Rate)/Beta
Since stock A has the highest Treynor measure, it has the highest excess return for each unit of systematic risk (Beta). Therefore, A provides the best risk-adjusted return and should be bought. Similarly, stock B has a higher Treynor measure than stock C, so it is preferred over stock C. Hence, buying stocks A, B, and C would be the best choice.

Question 19

Exhibit 25.4
Use the Information Below for the Following Problem(S)
The data presented below has been collected at this point in time.
 $$\begin{array} { l l c c c } 
\text { Fund } & \text { Beta } & \text { Deviation(4) } & \text { Return(4) } & \text { Re (46) } \
\hline \text { AAA } & 1.05 & 4.98 & 16 & 6 \
\mathrm { BBB } & 1.00 & 4.04 & 15 & 6 \
\text { CCC } & 0.92 & 3.13 & 11 & 6 \
\text { Market } & 1.00 & 375 & 13 & 6
\end{array}$$
-Refer to Exhibit 25.4.Compute the Jensen Measure for the BBB fund.

Accepted Answer

(15 - 6)- [1.00 (13.0 - 6.0)] = 2.00

Question 20

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

The described method of evaluating portfolio managers is a peer group comparison, as it compares the manager's returns to a universe of investors. The other options listed are not relevant to this type of evaluation.

Quiz 25: Evaluation of Portfolio Performance

Which of the following performance measures is the most rigorous risk-adjustment process separating systematic and unsystematic risk?

Suppose the expected return for the market portfolio and risk-free rate are 13% and 3% respectively.Stocks A,B,and C have Treynor measures of 0.24,0.16,and 0.11,respectively.Based on this information an investor should

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)