Thus, relative to the overall benchmark return of 0.86%, the capital goods sector was an underperforming sector and the financial sector outperformed.. However, the sector allocation ret
Trang 1Question #1 of 12
C) lacks statistical reliability
Explanation
McDaniel's returns-based benchmark is likely not a valid benchmark because it is not statistically reliable She uses only 12 data points (the monthly returns over the past year), and this is not
enough data points to generate a statistically reliable model Returns-based benchmarks are
measurable, investable, and unambiguous
Question #2 of 12
B) both are incorrect
Explanation
McDaniel is incorrect Although the null hypothesis is stated correctly (the manager adds no value), McDaniel's definition of a Type I error is incorrect A Type I error is when the null hypothesis is rejected when it is true Peterson is also incorrect A Type II error is failure to reject the null when it is false
Question #3 of 12
C) only one is correct
Explanation
McDaniel is correct One advantage to using a returns-based benchmark is that it is useful where the only information available is account returns Peterson is incorrect Returns- based benchmarks are generally easy to use and intuitive
Question #4 of 12
C) Yes, in both capital goods and financial sectors
Explanation
To answer this question, we must first examine the return for the overall benchmark versus the return for the benchmark in both sectors The overall return for the benchmark is given at 0.86% The capital goods sector return in the benchmark was -5.00% For the financial sector, it was 4.00% Thus, relative to the overall benchmark return of 0.86%, the capital goods sector was an
underperforming sector and the financial sector outperformed Now determine whether Matson overweighted or underweighted each sector He underweighted the weak capital goods sector
Trang 2(8.00% allocation for the manager versus 9.00% for the benchmark), and he overweighted the strong financial sector (20.00% allocation for the manager versus 18.00% for the benchmark) Because Matson underweighted a weak sector and he overweighted a strong sector, he made correct decisions for both
No calculations are needed to reach the above conclusions However, the sector allocation returns can be calculated by multiplying the difference between the portfolio and benchmark allocation by the difference in sector benchmark return and overall benchmark return for each sector For the capital goods sector, it is (8.0% - 9.0%) × (-5.00% - 0.86%) = 0.0586% For the financial sector, it is (20.0% - 18.0%) × (4.00% - 0.86%) = 0.0628%
Question #5 of 12
B) Yes, but only in the technology sector
Explanation
To answer this question, examine the return for the manager against the return for the benchmark in each sector Matson's return in the consumer durables sector was 2% versus 3% for the benchmark,
so he did not outperform the benchmark for security selection in this sector However, the return for the manager in the technology sector was 2.6% versus -2% for the benchmark, so he did outperform the benchmark for security selection in this sector
No calculations are needed to reach the above conclusions However, the within-sector allocation returns can be calculated by multiplying the difference between the portfolio and benchmark return in each sector by the benchmark's weight For the consumer durables sector, it is (2.0% - 3.0%) × 35%
= -0.35% For the technology sector, it is (2.6% + 2.0%) × 16% = 0.736%
Question #6 of 12
B) Yes, in both agricultural and utilities sectors
Explanation
To answer this question, multiply the difference in weightings for the manager and the benchmark by the difference in returns for the manager and the benchmark in each sector In the agricultural sector, this is (4% - 6%) × (-2% + 1%) = 0.02% In the utilities sector, this is (12% - 10%) × (4% + 2%) = 0.12%
Question #7 of 12
B) both are incorrect
Trang 3Willis is incorrect Endowments are not taxable entities so the tax advantage of the municipal bonds
is not a valid reason for the endowment to consider the municipal bonds Dunn is incorrect
Endowments typically have a high ability and willingness to take risk because of their infinite time horizon It is also imprudent for Dunn to state whether an investment is appropriate for National until
he has reviewed the investment policy statement
Question #8 of 12
C) 6.70%
Explanation
The M-squared measure for the Jaguar fund is 11.11%
To calculate the M-squared ratio for Jaguar, use the following formula:
Comparing the 11.11% to the return on the market of 10%, the Jaguar fund has superior
performance The M-squared measure for the Theta fund is 11.22%, which indicates that the Theta fund has superior performance relative to both the market and Jaguar fund
Question #9 of 12
B) 0.32
Explanation
The Sharpe ratio for Theta would be calculated as:
The Sharpe ratio for the Jaguar fund is 0.31, which indicates that the Theta fund has superior performance relative to the Jaguar fund
Trang 4Question #10 of 12
C) 9.1
Explanation
The Treynor ratio for Theta would be calculated as:
The Treynor ratio for the Jaguar fund is 15.0, which indicates that the Jaguar fund has superior performance relative to the Theta fund
Question #11 of 12
B) 7.6%
Explanation
The ex post alpha for Jaguar would be calculated as:
The ex post alpha for the Theta fund is 4.5%, which indicates that the Jaguar fund has superior performance relative to the Theta fund
Question #12 of 12
C) only one is correct
Explanation
Willis is correct By the Sharpe ratio and M-squared measures, which use total risk (standard deviation), the Theta fund has superior performance By the Treynor ratio and ex post alpha, which use systematic risk (beta), the Jaguar fund has superior performance The discrepancy is because the Jaguar fund is poorly diversified Dunn is incorrect National's current endowment is well
Trang 5diversified and thus the appropriate measure of risk for additional investments would be beta Because the Jaguar fund has a better Treynor ratio and ex post alpha, it is the better fund to add to the endowment