Schweser QBank 2017 portfolio management and wealth planning 11 evaluating portfolio performance

The manager's active return is the: portfolio return minus the market return.. Explanation The manager's active return is the portfolio return minus the benchmark return, where the bench

Test ID: 7427843Evaluating Portfolio Performance

Which of the following is least likely to be utilized in macro performance evaluation?

Beginning of period fund valuations

External cash flows into the fund

Pure sector allocation effects

Thierry Asset Management

Bond Portfolio Benchmark Interest rate effect -

Question #4 of 169 Question ID: 465789

Which of the following statements about the interest rate effects on the performance of a fixed-income portfolio is leastaccurate?

The overall effect represents the performance of a passive default-free bond

portfolio

The expected return is the return from the on-the-run Treasury spot rate curve

The expected return is the return from implied forward rates

Explanation

The expected return is the return implied by forward rates, not the on-the-run Treasury spot rate curve Although the forwardrates are derived from the spot rates, a two-year spot rate is not the same as the expected forward rate in two years time

Question #7 of 169 Question ID: 465687

What is the goal of performance appraisal?

Identification of overall risk and return

Identification of the sources of differences between portfolio and benchmark risk and

Meznar is currently married with 3 children He is concerned with the potential educational expenses of his children and wants

to set aside $500,000 for his favorite charitable organization The family needs $150,000 to maintain its current lifestyle Theexpected inflation rate is 6% and Meznar pays a 20% tax rate on his investment income Meznar does some investmentresearch on his own, is confident, careful and methodical, and tries to avoid extreme volatility However, he has a strongpreference for good, brand name companies

John Snow, CFA, of Capital Associates has been forwarded the file of Meznar to suggest an appropriate portfolio Snow reliesheavily on the following forecasts, furnished by the firm, for long term returns for different asset classes He has alreadydeveloped three possible portfolios for Meznar

Asset Class Return Standard

Question #9 of 169 Question ID: 465811

Sharpe Ratio = (Expected Return - Risk Free Rate)/ Standard Deviation

Portfolio X: Sharpe Ratio = (0.09 - 0.05) / 0.1074 = 0.372

Portfolio Y: Sharpe Ratio = (0.105 - 0.05) / 0.19 = 0.289

Portfolio Z: Sharpe Ratio = (0.1125 - 0.05) / 0.22 = 0.284

The Sharpe Ratio is correctly defined as a measure of a fund's:

excess return earned compared to its total risk

excess return earned compared to its systematic risk

return earned compared to its total risk

It is cheap to construct and easy to maintain

It meets all the required benchmark properties and all of the benchmark validity

criteria

Explanation

A major disadvantage of custom security-based benchmarks is that they can be expensive to construct and maintain Theother statements are regarded to be advantages of using custom security-based benchmarks

For a global portfolio, the money-weighted returns for the four quarters of last year are: 3%, -2%, 5%, and 2.5% The

corresponding time-weighted returns are: 2.5%, -1%, 4%, and 3.5% What would an investor report as the annual rate ofreturn on the portfolio?

9.23%

8.64%

9.0%

For reporting purposes, time weighted return is reported Annual return = 1.025 × 0.99 × 1.04 × 1.035 − 1 = 0.0923 or 9.23%.

An analyst has gathered the following asset allocations and returns, including an appropriate benchmark, covering the pasttwelve months for the Triad Fund

Fund and Benchmark Weights Fund and Benchmark Returns

Attributable to the within-sector selection effect: (0.5)(17.0 - 13.8) + (0.4)(8.1 - 8.3) + (0.10)(3.85 - 4.05) = 1.5%

Which of the following would be regarded as the least appropriate method to measure the performance of a hedge fund?

Separate long/short benchmarks.

The Sharpe ratio

Relative performance comparisons with traditional benchmarks

Explanation

Construct a separate long and short benchmark, which can then be combined together in their relevant proportions TheSharpe ratio compares the return to risk free rather than a benchmark Relative performance using traditional benchmarks isthe least appropriate given hedge funds concentration on absolute returns and the lack of reliable traditional benchmarks

Accounts that contain illiquid assets present additional problems of accurately measuring return Which of the followingstatements would NOT be regarded as a problem associated directly with illiquid assets?

Assets are carried at the price of the last trade

Account valuations use trade date accounting as opposed to settlement accounting

Matrix pricing is used

Explanation

The use of trade date accounting is regarded to be a key feature of a good return measurement process The other optionsare examples of the problems caused when illiquid assets are included in the account Matrix pricing is using the quoted price

of a similar asset as a proxy for the market value of thinly traded fixed income securities

Which of the following statements best describes the steps required to construct a custom security-based benchmark?Identify the manager's investment process including asset selection and

weighting; use representative assets and long run average weightings for the

benchmark; assess and rebalance the benchmark on a predetermined

schedule

Identify the manager's investment process including asset selection and weighting;

use the same assets and weighting for the benchmark; assess and rebalance the

benchmark on a predetermined schedule

Identify the manager's investment process including asset selection and weighting;

use the same assets as the manager and the long run average weighting for the

benchmark; assess and rebalance the benchmark on a predetermined schedule

Explanation

The three steps required to construct a custom security-based benchmark are as follows:

1 Identify the manager's investment process including asset selection and weighting.

2 Use the same assets and weighting for the benchmark.

3 Assess and rebalance the benchmark on a predetermined schedule.

Question #17 of 169 Question ID: 465696

time-weighted return does not

computes the return more precisely using the internal rate of return computation while

time-weighted return computation is an approximation

is averaged across periods to arrive at an annual rate of return while the

time-weighted return is compounded across periods to arrive at an annual rate of return

Which of the following is NOT a conclusion regarding quality control charts and how they are typically used to evaluate

manager performance?

This is a two-tailed test

Keeping a manager who generates no value added would be a Type I error

H will be that the manager adds no value; H is that the manager adds positive value

Explanation

The test is set up as null, the manager generates no added value and the alternative is that the manager adds value So weare looking for positive added value which is a one-tailed test Therefore, the alternative will be that the manager generatespositive value added

Which of the following is the most appropriate method of calculating the manager's active return? The manager's active return

is the:

portfolio return minus the market return

market return minus the benchmark return

portfolio return minus the benchmark return

Explanation

The manager's active return is the portfolio return minus the benchmark return, where the benchmark is appropriate to the

Fund and Benchmark Weights Fund and Benchmark Returns

Sharpe ratio = (Return - risk free rate) / std deviation = (0.22 − 0.05) / 0.30 = 0.5667

The value added to the Supreme Fund returns attributable to the sector effect is:

-0.19%

0.55%

-0.46%

Explanation

The benchmark return is (.6 x 12.9) + (.3 x 6.9) + (.1 x 4.1) = 10.22

Attributable to the sector effect: (0.50 - 0.60)(12.9 - 10.22) + (0.45 - 0.30)(6.9 - 10.22) + (0.05 - 0.10)(4.1 - 10.22) = -0.46%

Question #22 of 169 Question ID: 465758

Attributable to the within-sector effect: (0.60)(14.5 - 12.9) + (0.30)(7.2 - 6.9) + (0.10)(4.2 - 4.1) = 1.06%

When constructing a quality control chart which of the following is an important assumption that is made about the distribution

of the manager's value added returns?

The investment process is consistent thus ensuring that a high degree of the

error term in one period can be explained by the error term in the previous

period

Value-added returns are independent from period to period and normally distributed

The null hypothesis states that the expected value-added return is the risk free rate of

return

Explanation

The null hypothesis states that the expected value-added return is zero We are testing the manager's ability to generatepositive expected value added returns We want a consistent process to ensure that the distribution of value added returnsabout their mean is constant We do indeed assume that value-added returns are independent from one period to the nextand normally distributed

Markus Smith, CFA, is looking at different measures of risk for bond portfolios as well as stock and bond mutual funds He hasseveral projects currently underway

Smith's first project is to decompose the various sources of return for the BBB Bond Fund (BBB) which yielded a return of 12%.The actual treasury yield was 8%, which is 1.0% better than the expected yield of 7.0% In addition, Smith has ascertained thatthe BBB portfolio benefited by 0.50% due to maturity management and 1.25% from spread/quality management

Smith's second project involves AAA Bond Fund (AAA) Smith gathers the following data:

Actual AAA portfolio return = 10% (duration of portfolio = 10 years)

Lehman Brothers Benchmark Index return = 8% (duration of portfolio = 8 years)

According to the bond market line (BML), the return for a portfolio with a10-year duration should be 9%

The AAA Bond Fund's long-term strategic portfolio has a duration of 9 years, and a target return of 8.5%

Smith now turns his attention towards his third project, Star Equity Fund The table below details relevant information:

Question #24 of 169 Question ID: 465853

Asset Class Star Fund Weights Star Fund Returns Benchmark Returns

Overall Star Fund return = 11.60%

Overall benchmark return = 13.82%

Smith's last project is for the Plumb America Index Fund

Plumb America S & P 500

Treynor's measure = (Return - risk free rate) / beta = (0.22 − 0.05) / 1.2 = 0.1417

Assuming a risk-free rate of 5%, what is the Sharpe ratio for the Plumb America Index Fund?

+0.6716

+0.5667

-0.5776

Explanation

Sharpe ratio = (Return - risk free rate) / std deviation = (0.22 − 0.05) / 0.30 = 0.5667

An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same timeperiod

Equity Fund S&P 500

Return -12% -16%

Standard Deviation 15% 19%

The equity fund is (-0.15 - (-0.22) = 0.07 higher

Given the following data, how is the manager's performance most accurately characterized?

Manager's Return 7.6%

Benchmark Return 6.2%

Market Index Return 8.8%

The manager earned an excess return from style but not from active

management

The manager earned an excess return from active management but not from style

The manager earned an excess return from style and active management

Explanation

The manager earned a return from active management, where the active return is the manager's return minus the benchmarkreturn (7.60% − 6.20% = 1.40%) The manager did not earn a return from style, where the style return is the benchmark returnminus the market return (6.20% − 8.80% = -2.60%)

The following data pertains to the UBZ Balanced Fund:

Asset Class Fund Weight Benchmark Weight Fund Return (%) Benchmark Return (%)

What is the within-sector selection effect?

of managers by examining return information from both the portfolio being evaluated and its designated benchmark

Michaels has the following return information for the AM Growth Fund:

AM Growth Fund S&P 500

If the AM Growth Fund is considered to be well-diversified, which measure would be more appropriate in evaluating its

risk/return performance?

The Treynor measure

Jensen's Alpha measure

The Sharpe ratio

both macro and micro evaluation focus on the deviations from benchmarks

micro evaluation is an incremental approach and macro evaluation focuses on

deviations from benchmarks

macro evaluation is an incremental approach and micro evaluation focuses on

deviations from benchmarks

Explanation

This is the most correct statement The macro evaluation looks at the beginning and ending values of the entire fund andattributes the return contributed at each level of decision making Micro evaluation looks at individual portfolios and tries toexplain its return with respect to its deviation from a benchmark

Frank Belanger would like to calculate the rate of return for an illiquid asset He states that he will use matrix pricing to obtain asubstitute for the security's current price Which of the following most accurately describes matrix pricing? In matrix pricing, theanalyst uses:

the price from the last trade for the same security

an average of recent prices

dealer quotes for similar securities

Explanation

Matrix pricing is used when the asset is illiquid and a security price is not readily available In matrix pricing, the analyst usesdealer quoted prices for similar securities

Which of the following measures used to evaluate the performance of a portfolio manager is (are) NOT subject to the

assumptions of the capital asset pricing model (CAPM)?

Jensen's alpha and the Treynor measure

a portfolio

Which of the following statements regarding the Sharpe ratio is most accurate?

The denominator of the Sharpe ratio is standard deviation which is comprised

partly of systematic risk called beta

Beta is not a component of the Sharpe ratio

The measure of risk used in the denominator of the Sharpe ratio is standard deviation

also known as unsystematic risk

Explanation

The equation for the Sharpe ratio = (R − R ) / σ

The Sharpe ratio contains standard deviation in the denominator of the equation which is total risk and is comprised of bothsystematic risk called beta and unsystematic risk thus the Sharpe ratio does contain a component of beta

Suppose that a portfolio management firm has abnormally high turnover in their staff Which of the following is the most likelyscenario?

The firm's Type I error rate is high and their Type II error rate is high

The firm's Type I error rate is high and their Type II error rate is low

The firm's Type I error rate is low and their Type II error rate is high

Explanation

Type I error is retaining a poor manager and Type II error is firing a superior manager If a firm has high turnover in staff, it isunlikely they are retaining poor managers but more likely that they are firing good managers

Since both portfolios are not well diversified most of their risk comes from unsystematic (company specific) risk and is not tied

to the overall level of risk in the market thus in this case standard deviation is the best measure of risk to use The Sharpe ratio

is the best measure to use to compare the two portfolios which are undiversified since the Sharpe ratio uses standard

deviation or total risk in the denominator of the equation as its measure of risk The Treynor measure uses beta or systematicmarket risk as the measure of risk in the denominator and the information ratio is best to use when comparing a portfolio to abenchmark

All of the following would be regarded as a specific disadvantage of factor-based-models, EXCEPT:

it is possible to construct multiple benchmarks, all having the same factor

exposures but with different returns

the benchmark may not be investable

the manager's style may deviate from the style reflected in the benchmark

Explanation

The manager's style may deviate from the style reflected in the benchmark is a weakness of broad based market indexes notfactor-model-based benchmarks The other statements are regarded to be disadvantages of factor-model-based benchmarks

Which of the following statements about fund performance is CORRECT?

A fund had total excess return of 1.82% Of the total, 1.60% was due to the style

of the fund that was specified by the sponsor, and 0.22% was due to security

selection The amount of the excess return that should be credited to the fund

manager is 1.82%

When analyzing the performance of a bond portfolio the manager should be evaluated

relative to a style universe Focusing on maturity ranges or a particular market

segment is not one of the accepted style universes

An equity fund had a return over the past year of 17% and a standard deviation of

returns of 12% During this period the risk-free return was 3% The Sharpe ratio for

the fund was 1.17

Explanation

The Sharpe ratio = (0.17 - 0.03)0.12 = 1.17

Note that focusing on maturity ranges or a particular market segment are definitions of style for a bond portfolio manager.Also, managers whose styles are specified for them should only get credit for the excess return that is due to security

selection

The following information relates to the Fabregas Pension Fund

Value of the fund if:

net contributions value is invested based on the fund sponsor's policy allocations $220,369,968

passively invested in the aggregate of the manager's respective benchmarks $221,031,078

invested in the aggregate of the manager's actual portfolios $221,141,594

What was the incremental percentage return contribution attributable to net contributions?

Question #40 of 169 Question ID: 465775

(Study Session 17, LOS 34.l)

What was the incremental percentage return contribution attributable to the risk free asset?

(Study Session 17, LOS 34.l)

What was the incremental percentage return contribution attributable to Asset Category?

Question #42 of 169 Question ID: 465777

(Study Session 17, LOS 34.l)

What was the incremental percentage return contribution attributable to benchmarks?

(Study Session 17, LOS 34.l)

What was the incremental percentage return contribution attributable to Investment Managers?

0.500%

(Study Session 17, LOS 34.l)

What was the incremental percentage return contribution attributable to allocation effects?

Question #45 of 169 Question ID: 465869

(Study Session 17, LOS 34.l)

Suppose that all of a firm's managers are outperforming the benchmark, some by a little, some by a lot If the confidenceintervals for a quality control charts in portfolio management were widened, what would the most likely effect be?

Type I error would become less likely and Type II error would become more

likely

Type I error would become more likely and Type II error would become less likely

Type I error would become more likely and Type II error would become more likely

Explanation

Type I error is retaining a poorly performing manager If the confidence intervals are widened and a poor manager is barelyoutperforming the benchmark, it is less likely that they will have statistically significant excess returns We are thus more likely

to fire them and hence less likely to commit Type I error At the same time, we may be firing good managers who are

outperforming the benchmark but yet do not have statistically significant excess returns We are thus more likely to commitType II error as Type II error is firing a superior manager

Suppose that a portfolio management firm has decided that the costs of hiring and firing managers are excessive Which ofthe following would be their most appropriate course of action? The firm should:

tolerate more Type I error to reduce Type II error

tolerate more Type II error to reduce Type I error

reduce both Type I and Type II errors

Explanation

Type I error is retaining a poor manager and Type II error is firing a superior manager If a firm wishes to reduce the costs ofhiring and firing managers, then they should reduce staff turnover So they should err on the side of retaining poor managers(Type I error) to reduce the chance of firing superior managers (Type II error) They might do this by relaxing the performancecriteria managers must meet

Peter Michaels, CFA, works at Composite Investment Management Consulting (Composite), where he is in charge of

evaluating the performance of all separate account managers that Composite uses for its institutional clientele His main tasksare to measure and evaluate the sources of return that can be attributed to manager performance Michaels understands theimportance of incorporating risk into his analyses, but realizes there are limitations associated with some performance

measurement techniques in accomplishing that particular objective

Question #47 of 169 Question ID: 465844

If the AM Growth Fund is considered a focused, undiversified portfolio, which measure would be more appropriate in

evaluating its risk/return performance?

The Sharpe ratio

The Treynor measure

Jensen's Alpha measure

Explanation

If the AM Growth Fund is undiversified, the Sharpe ratio would be more appropriate The Sharpe ratio measures excess returnper unit of total risk, while Treynor measures excess return per unit of systematic risk For a well-diversified portfolio, therankings between the Sharpe and Treynor measures will be insignificant as total risk and systematic risk will be approximately

f

f

f

f

Question #49 of 169 Question ID: 465741

the same However, if a portfolio is not well diversified, the Treynor measure may overstate the portfolio's ranking becauseonly systematic risk is considered Sharpe will consider unsystematic risk, which will give the undiversified portfolio a moreappropriate ranking

Which of the following would be least appropriate in macro performance evaluation?

Market indices would be used for manager styles

External cash flows would be used to determine the impact of the sponsor's decision

making

A benchmark return is calculated as a weighted average of the individual managers'

benchmark returns

Explanation

Broad market indices would be used for asset categories Narrow indices would be used for manager's investment styles

Which of the following statements regarding diversification and risk adjusted performance measures is least accurate?

Investors want their portfolio managers to completely diversify their portfolios

Treynor's performance measure should be used to evaluate portfolios that will be an addition

to an overall larger portfolio

Treynor's performance measure assumes a well diversified portfolio

Explanation

If a portfolio manager completely diversifies (i.e., eliminates all non-systematic risk), then the appropriate rate of return would be that ofthe market However, why would you pay active management fees to get the same return of a passively managed index product? Treynoruses beta as its risk measure, which means that it should be used in the context of a diversified portfolio

The following are a number of contributions to return for a fixed-income portfolio:

1 Return on interest rate management

2 Return on trading activity

3 Return due to changes in forward rates

4 Return on the default-free benchmark

Which of the above statements is (are) CORRECT?

Effect of External

Interest

Environment

Contribution of theManagementProcess

sector/quality management and return from the selection of specific securities.

Jensen's alpha for a portfolio measures the:

fund's return in excess of the required rate of return given the systematic risk

of the portfolio

difference between a fund's return and the market return

fund's return in excess of the required rate of return given the unsystematic risk of the

portfolio

Explanation

Jensen's alpha measures the return above the required rate of return based on the fund's systematic risk Said differently,Jensen's alpha is the amount of return earned by the fund over and above the return predicted for the fund based on thecapital asset pricing model, given the fund's systematic risk

Jack Jensen is the president of Jensen Management Jensen prides himself on the care of his employees He states that in 30years of portfolio management, he has only had to fire two employees Tom Mercer is president of Analytical Investors Hispolicy has been to replace poorly performing managers, where poor performance equals underperforming their benchmark fortwo successive quarters Which of the following best describes these managers' continuation decisions?

Jensen is likely committing Type I error and Mercer is likely committing Type II

error

Jensen is likely committing Type II error and Mercer is likely committing Type I error

Jensen is not likely to be committing any error and Mercer is likely committing Type II

error

Explanation

Type I error is retaining (or hiring) a poorly performing manager Jensen is likely committing Type I error because he rarelyfires anyone Type II error is firing (or not hiring) a superior manager Jensen is likely committing Type II error because hefires managers after only two quarters of underperformance Two quarters is not enough time to properly evaluate a manager

Question #54 of 169 Question ID: 465792

The Sharpe ratio, Treynor measure, the M measure and Jensen's Alpha techniques all measure the risk/return performance

of portfolios Which of the following statements about these measurement techniques is least accurate?

While the Treynor measure computes excess return per unit of risk, Jensen's

Alpha measures differential return for a given level of risk

Using the capital market line the M compares the account's return to the market

return and is a comparative measure

The Sharpe ratio measures the slope of the capital allocation line (CAL), with the

lowest slope having the most desirable risk/return combination

Explanation

Although it is true that the Sharpe ratio measures the slope of the CAL, the higher the slope the more desirable the portfolio.Your goal is to select the portfolio that has the highest Sharpe measure, which will also have the steepest slope At any givenrisk level, the higher the slope the greater the return

Which of the following best describes the impact of survivorship bias on using manager universes as benchmarks?

Fund sponsors will terminate underperforming managers, underperforming

accounts will not survive, and the median will be biased upwards

As consistently underperforming funds are terminated by the fund sponsors, the

surviving funds shrink in number such that in a fairly short period of time the number

of funds is too small to allow meaningful benchmarking

Fund sponsors are reluctant to terminate underperforming funds, these accounts

survive in the benchmark, and the median will be biased downwards

Explanation

The evidence is clear Fund sponsors will rationally terminate underperforming managers, underperforming accounts will notsurvive, and the median will be biased upwards Fund sponsors demonstrate little appetite for underperforming accounts andthey are quickly removed

Which of the following statements relating to allocation/selection attribution and fundamental factor model attribution is leastaccurate?

The strength of allocation/selection attribution is that it disaggregates

performance effects of manager's decisions between sectors and securities

The strength of fundamental factor analysis is its simplicity and the reliability of the

correlations it produces

2

2

The following data has been collected to appraise the performance of four asset management firms:

Dixon Fund Adams Fund Bould Fund Winterburn Fund Market Index

The risk free rate of return is 4%

Using the Treynor measure, rank the four funds in terms of the risk adjusted excess returns starting with the highest

performing fund and ending with the lowest performing fund:

Bould, Adams, Dixon, Winterburn

Adams, Bould, Dixon, Winterburn

Adams, Bould, Winterburn, Dixon

Explanation

Thus the ranking is 1) Adams 2) Bould 3) Dixon 4) Winterburn

Using the M Measure, rank the four funds in terms of the risk adjusted excess returns starting with the highest performingfund and ending with the lowest performing fund:

Adams, Bould, Dixon, Winterburn

Adams, Dixon, Winterburn, Bould

2

Thus the ranking is 1) Adams 2) Bould 3) Dixon 4) Winterburn.

Using the Sharpe Measure, rank the four funds in terms of the risk-adjusted excess returns starting with the highest

performing fund and ending with the lowest performing fund:

Bould, Adams, Dixon, Winterburn

Adams, Bould, Dixon, Winterburn

Adams, Bould, Winterburn, Dixon

Explanation

Thus the ranking is 1) Adams 2) Bould 3) Dixon 4) Winterburn

If Hill uses the Sharpe measure as his chosen performance measure, which portfolio would he add?

Question #61 of 169 Question ID: 465719

Account valuations include trade date accounting

Matrix pricing is used for some fixed income securities

When accounts contain illiquid assets, estimates or guesses are used in the

calculation

Explanation

The use of trade date accounting would be regarded as a positive attribute of the account in the context of measuring returns.Trade date accounting is preferred to settlement date and the inclusion of accrued interest and dividends would be ideal.Matrix pricing is the use of estimated prices taken from quoted prices on securities with similar characteristics; this couldclearly introduce inaccuracies in the measurement of returns

Which of the following is least likely to be a property of a valid benchmark?

It is possible for the investor to replicate the benchmark

The weights of the securities in the benchmark should be based on market values

The benchmark is consistent with the manager's style

Attribution analysis for bonds is virtually impossible.

Benchmark error is nonexistent with the Treynor measure

Attribution analysis separates a portfolio manager's performance into an allocation

effect and a selection effect

Explanation

Attribution analysis can be done with bonds as it is with equities The only difference is the categories of attribution

Benchmark error is very much a part of the Treynor measure, as it uses beta as its risk measure

Which of the following statements in relation to the effect of the external interest environment is least accurate?

Return on the default-free benchmark assumes no change in the forward rates

The overall effect represents the performance of a passive, default free bond portfolio

The return due to the external interest rate environment is estimated from a term

structure analysis of AAA rate corporate securities

Question #66 of 169 Question ID: 465744

Which of the following is the least likely to be an input into micro performance evaluation?

The return on the risk-free asset

The sector return for the manager

The weight of a sector in the benchmark

For the Prime Growth Fund, the Sharpe ratio = (12 − 3) / 22 = 0.41

For the S&P 500, the Sharpe ratio = (9.50 − 3.00) / 14 = 0.46

What is the Treynor measure for the Prime Growth Fund and the S&P 500?

0.08; 0.07

For Prime Growth Fund, the Treynor measure = (0.12 − 0.03) / 1.12 = 0.0804

For the S&P 500, the Treynor measure = (0.0950 − 0.03) / 1 = 0.0650

The following information is available for the Trumark Fund:

The Trumark Fund has an average annual return of 12% over the last five years

Trumark has a beta value of 1.35

Trumark has a standard deviation of returns of 16.80%

During the same time period, the average annual T-bill rate was 4.5%

During the same time period, the average annual return on the S&P 500 portfolio was 18%

What is the Sharpe ratio for the Trumark Fund?

Flamini Fund has the following results for a micro attribution analysis:

Economic Sectors

Portfolio Sector Weight (%)

Benchmark Sector Weight (%)

Portfolio Sector Return (%)

Benchmark Sector Return (%)

Question #73 of 169 Question ID: 465771

If a portfolio had an alpha of −10 bps, then the portfolio:

earned 10 bps less than the market

earned 10 bps less than the market on a risk-adjusted basis

had less risk than the market

Explanation

Recall that Jensen's alpha measures excess return for a given level of risk It is a "risk-adjusted" measure of return

One limitation of the time-weighted return is the fact that it:

penalizes managers for cash flows that occur outside of their control

requires computations every time a cash flow occurs

requires the computation of the internal rate of return every time a cash flow occurs

Question #77 of 169 Question ID: 465760

You have performed attribution analysis for the XVX Portfolio and have determined that the sector effect was 0.322%, thewithin-sector selection was -0.157%, and the allocation/selection effect was 0.061% The benchmark return was 8.441% Howmuch was the manager's total value added for XVX, and what was the XVX Portfolio's return during the period?

0.226%, 8.667%

0.418%, 8.859%

0.226%, 8.215%

Explanation

Total value added = 0.322 + (−0.157) + 0.061 = 0.226% Portfolio return = 8.441 + 0.226 = 8.667%

Which of the following best describes the use of quality control charts in portfolio management? Quality control charts are used

to determine if a manager has:

statistically significant excess returns

substantial excess returns

strayed from their stated style

Explanation

In portfolio management, quality control charts are used to determine if a manager has statistically significant excess returns.The manager's returns versus a benchmark are plotted on a graph where time is on the x-axis and value-added (excess)return is plotted on the y-axis A confidence interval is formed around the x-axis of zero If the manager's returns plot outsidethe confidence interval, we conclude that the manager has generated statistically significant excess returns

An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same timeperiod

Equity Fund S&P 500

Return 32% 26%

Standard Deviation 41% 29%

The difference between the Sharpe ratio for the equity fund and the Sharpe ratio for the S&P 500 is the:

equity fund is 0.06 lower

S&P 500 is 0.04 lower

S&P 500 is 0.09 higher

Explanation

The equity fund Sharpe ratio: (0.32 - 0.06)/0.41 = 0.63

The S&P 500 Sharpe ratio: (0.26 - 0.06)/0.29 = 0.69

The equity fund is (0.63 - 0.69) = -0.06 lower

The results of a macro performance attribution analysis of a fund is listed below

Fund ValueBeginning value $100,000

Question #81 of 169 Question ID: 465763

Value added return is defined as the:

portfolio return in excess of the return predicted based on the Capital Asset

Pricing Model

fund return minus the risk-free rate of return

portfolio return minus the benchmark return

Explanation

Value added return = Portfolio return - Benchmark return

Which of the following are examples of an asset allocation strategy used by a portfolio manager?

Selecting assets within a market segment that will outperform the assets contained

within the corresponding benchmark index

Both market timing and sector rotation

Sector rotation

Explanation

Both market timing and sector rotation are examples of asset allocation strategies

Which of the following statements about style indexes is least accurate?

They help fund sponsors better understand a manager's investment style, by

capturing factor exposures

They are widely available, widely understood and widely accepted

Some style indexes can contain weightings in certain securities and/or sectors that

may be larger than considered prudent

The actual treasury yield was 8%, which is 0.5% better than the expected yield of 7.5% In addition, Brown has ascertainedthat his portfolio benefited by 0.50% due to sector allocation and 0.25% from allocation/selection interaction Based on thisinformation, how much of the portfolio's overall return is attributable to within-sector selection?

1.25%

1.00%

1.75%

Explanation

Expected treasury yield = 7.50%

Unexpected treasury yield = 0.50%

Return from sector allocation = 0.50%

Return from allocation/selection interaction = 0.25%

Return attributable to within-sector selection = 1.25%

(can be backed out given the other information)

Total return = 10.0%

The Campbell account is $5,000,000 at the beginning of January and $5,200,000 at the end of the month During the month acontribution of $60,000 was received What would be the rate of return on the account if the contribution was received onJanuary 1, what would it be if the contribution was received on January 31?

If the receipt was at the beginning of the period then:

If the receipt was at the end of the period then:

Given the following data, how is the manager's performance most accurately characterized?

Manager's Return 5.2%