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LOS c: Recommend an equity investment approach when given an investor's investment policy statement and beliefs concerning market efficiency. ffice ffice" />
Q1. An investor believes markets are efficient and pursues an equity investment strategy consistent with their beliefs. Which of the following best characterizes their portfolio, relative to other possible equity strategies?
A) High tracking risk and low information ratio.
B) Low tracking risk and low information ratio.
C) Low tracking risk and high information ratio.
Correct answer is B)
If an investor believes markets are efficient, the investor will pursue a passive strategy. Relative to active and semiactive strategies, passive strategies are characterized by low expected active return, low tracking risk, and low information ratio.
Q2. Which of the following investors would be more likely to pursue passive equity management strategies?
A) A nontaxable investor who believes markets are efficient.
B) A taxable investor who believes markets are efficient.
C) A taxable investor who believes markets are inefficient.
Correct answer is B)
Passive strategies have low turnover, fewer realized capital gains, and hence lower associated taxes. If an investor believes markets are efficient, he or she would be more likely to pursue a passive strategy because the investor would not believe that beating the market was possible through an active strategy.
Q3. Which of the following best characterizes the historical record of active management? Compared to passive management, active manager returns:
A) equal passive management before expenses and underperform after expenses.
B) outperform passive management before expenses and equal passive management after expenses.
C) underperform passive management before expenses and underperform passive management after expenses.
Correct answer is A)
Compared to passive management, active managers have average returns similar to passive management before expenses. After expenses, they underperform passive management on average.
Q4. In which of the following situations should an equity investor generally consider a passive management strategy?
A) When investing in global markets.
B) The manager should consider a passive strategy in both of these cases.
C) When investing in large cap markets.
Correct answer is B)
Passive strategies are generally recommended in both of these situations. When investing in large cap stocks, a passive strategy is suitable because these markets are usually informationally efficient. In international equity markets, the foreign investor may be at an informational disadvantage compared to the local investor.
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发表于 2009-3-6 17:23
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