标题: Portfolio Management and Wealth Planning【Session17 - Reading 41】 [打印本页]
作者: optiix 时间: 2012-3-24 13:24 标题: [2012 L3] Portfolio Management and Wealth Planning【Session17 - Reading 41】
June Spraker, CFA, manages a portfolio for a private family. In the recent update of the investment policy statement (IPS), the family has asked Spraker to increase the sophistication of her portfolio performance evaluation to give an exhaustive assessment of the risks to which the portfolio is exposed. The family insists on including the details of the evaluation process in the IPS. Their request is: A)
| not justified because portfolio performance evaluation should not be addressed in the IPS. |
|
B)
| justified because there are a wide variety of ways investment returns can be earned with many types of risk exposures, and the details of the process should be in the IPS. |
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C)
| justified because this is what the law requires, but the usefulness of the request is not clear. |
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Understanding how a return was earned is very important so that the manager can know if the fund had the correct exposures as specified in the IPS.
作者: optiix 时间: 2012-3-24 13:25
With respect to the level of return and how the return was earned, performance evaluation should: A)
| give an indication of both the level of return and how the return was earned. |
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B)
| not give an indication of either the level of return or how the return was earned. |
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C)
| give an indication of the level of return but not how the return was earned. |
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Performance evaluation is more than a simple exercise in calculating rates of return. Rather, it provides an exhaustive “quality control” check, emphasizing not only the performance of the fund and its constituent parts relative to objectives, but the sources of that relative performance as well.
作者: optiix 时间: 2012-3-24 13:25
In the management of a fund, performance evaluation is part of: A)
| the feedback step of the investment management process. |
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B)
| the strategic decision-making step of the investment management process. |
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C)
| the compensation computation of the investment management process. |
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Performance valuation is part of the feedback step.
作者: optiix 时间: 2012-3-24 13:25
In global performance evaluation, performance attribution seeks to: A)
| differentiate whether returns come from a manager’s luck or skill. |
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B)
| identify the sources of difference between portfolio and benchmark return. |
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C)
| measure the risk and return of the portfolio. |
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Performance attribution seeks to identify the sources of difference between portfolio and benchmark return. Note that performance measurement involves the calculation of risk and return, while performance appraisal seeks to identify whether returns are a result of a manager’s luck or skill.
作者: optiix 时间: 2012-3-24 13:26
What is the goal of performance appraisal? A)
| Interpretation of performance attribution. |
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B)
| Identification of the sources of differences between portfolio and benchmark risk and return. |
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C)
| Identification of overall risk and return. |
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Performance appraisal involves the interpretation of performance attribution. A judgment is made about manager’s decisions and skill, in an effort to differentiate between returns attributable to luck and those attributable to skill.
作者: optiix 时间: 2012-3-24 13:28
Which of the following is the most likely impact of receiving a contribution into an account at the beginning of the period as opposed to the end of the month? A)
| Return will be unaffected at the impact of the contribution has an equal impact on the numerator and denominator. |
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B)
| Return will be lower because the impact on the numerator outweighs the impact of the contribution on the denominator. |
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C)
| Return will be lower because the contribution is added to the assets in the denominator and reduces the size of the numerator. |
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If you consider the calculation of return when a contribution is received at the beginning of the period, it is added to the opening market value. This increases the denominator, which is now opening market value plus the contribution. In the numerator, the addition of the contribution to the opening market value reduces the difference between this value and the closing value at the end of the month. There is a larger denominator and a smaller numerator. Therefore, return must be reduced.
作者: optiix 时间: 2012-3-24 13:29
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 a contribution of $60,000 was received. What would be the rate of return on the account if the contribution was received on January 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:
作者: optiix 时间: 2012-3-24 13:29
Which of the following formulas would represent an appropriate calculation of the rate of return earned by a fund when the fund receives an external cash flow at the beginning of a period?
If an external cash flow is received at the beginning of a period then the market value at this point is adjusted to include that cash flow, it is added to the opening market value of the fund and it is added to the denominator. In this way, the return measure reflects the return on the funds under management during the measurement period.
作者: optiix 时间: 2012-3-24 13:29
Tom Stovall is a portfolio manager who tracks the Wilshire 5000 Index. He received a large cash inflow from a client prior to a bull market. Which of the following most accurately characterizes the relationship for the time-weighted return and the money-weighted return for Tom? The time-weighted return will be: A)
| inflated by the timing of the cash inflow and the time-weighted return will be larger than the money-weighted return. |
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B)
| unaffected by the timing of the cash inflow and the time-weighted return will be larger than the money-weighted return. |
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C)
| unaffected by the timing of the cash inflow and the time-weighted return will be smaller than the money-weighted return. |
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If a manager receives a large cash inflow from a client prior to a bull market, the money-weighted return will be higher than the time-weighted return. The time-weighted return will be unaffected by the timing of the cash inflow.
作者: optiix 时间: 2012-3-24 13:30
The money-weighted return measures the: A)
| return on the average investment during the period. |
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B)
| total return during the period. |
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C)
| return per unit of domestic currency. |
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The money-weighted return measures the return on the average investment during a specific time period. The money-weighted return computation uses the concept of an internal rate of return.
作者: optiix 时间: 2012-3-24 13:30
The time-weighted return measures the: A)
| return on the average investment during the period. |
|
B)
| return per unit of domestic currency. |
|
C)
| total return during the period. |
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The time-weighted return measures the return per unit of domestic currency. The calculation involves taking a geometric average of the returns of the various sub-periods.
作者: optiix 时间: 2012-3-24 13:30
What is the major difference between the money-weighted and time-weighted rate of return? The money-weighted return: A)
| computes the return more precisely using the internal rate of return computation while time-weighted return computation is an approximation. |
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B)
| penalizes managers for cash flows that occur outside of their control while the time-weighted return does not. |
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C)
| 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. |
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The time-weighted return is computed every time a cash flow occurs, so it does not penalize managers for cash flows that occur outside of their control. The money-weighted return, on the other hand, is impacted by cash flows. Note that an approximation for different time periods can be made when using the time-weighted return, however, using an approximation would be at the discretion of the person calculating the return and is not part of the methodology behind the time-weighted return calculation.
作者: optiix 时间: 2012-3-24 13:31
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 of return on the portfolio?
For reporting purposes, time weighted return is reported. Annual return = 1.025 × 0.99 × 1.04 × 1.035 − 1 = 0.0923 or 9.23%.
作者: optiix 时间: 2012-3-24 13:31
Which of the following least accurately characterizes the time-weighted return? The time-weighted return: A)
| can be expensive and error prone. |
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B)
| is most appropriate for a manager who cannot control the timing of the cash flows in and out of the fund. |
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C)
| is similar to the internal rate of return. |
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The time-weighted return is not similar to the internal rate of return. The money-weighted return is similar to the internal rate of return and is also known as the linked internal rate of return. The other responses accurately characterize the time-weighted return.
作者: optiix 时间: 2012-3-24 13:31
One limitation of the time-weighted return is the fact that it: A)
| requires the computation of the internal rate of return every time a cash flow occurs. |
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B)
| requires computations every time a cash flow occurs. |
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C)
| penalizes managers for cash flows that occur outside of their control. |
|
The time-weighted return computation requires computation of return every time a cash flow occurs. One of the advantages of the time-weighted return is that passive benchmarks use the same calculation methodology which makes it comparable to passive benchmarks and other portfolio managers.
作者: optiix 时间: 2012-3-24 13:31
One limitation of the money-weighted return is the fact that it: A)
| computes the return independent of the cash flows. |
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B)
| requires computations every time a cash flow occurs. |
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C)
| penalizes managers for cash flows that occur outside of their control. |
|
The money-weighted return computation penalizes managers for cash flows that occur outside of their control.
作者: optiix 时间: 2012-3-24 13:32
Accounts that contain illiquid assets present additional problems of accurately measuring return. Which of the following statements would NOT be regarded as a problem associated directly with illiquid assets? A)
| Account valuations use trade date accounting as opposed to settlement accounting. |
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B)
| Matrix pricing is used. |
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C)
| Assets are carried at the price of the last trade. |
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The use of trade date accounting is regarded to be a key feature of a good return measurement process. The other options are 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.
作者: optiix 时间: 2012-3-24 13:32
Which of the following would NOT be regarded to be a problem relating to the quality of data used in calculating rates of return? A)
| Account valuations include trade date accounting. |
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B)
| Matrix pricing is used for some fixed income securities. |
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C)
| When accounts contain illiquid assets, estimates or guesses are used in the calculation. |
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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 could clearly introduce inaccuracies in the measurement of returns.
作者: optiix 时间: 2012-3-24 13:32
Frank Belanger would like to calculate the rate of return for an illiquid asset. He states that he will use matrix pricing to obtain a substitute for the security’s current price. Which of the following most accurately describes matrix pricing? In matrix pricing, the analyst uses: A)
| the price from the last trade for the same security. |
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B)
| an average of recent prices. |
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C)
| dealer quotes for similar securities. |
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Matrix pricing is used when the asset is illiquid and a security price is not readily available. In matrix pricing, the analyst uses dealer quoted prices for similar securities.
作者: burning0spear 时间: 2012-3-24 13:34
Which of the following is the most appropriate method of calculating the manager’s active return? The manager’s active return is the: A)
| market return minus the benchmark return. |
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B)
| portfolio return minus the benchmark return. |
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C)
| portfolio return minus the market return. |
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The manager’s active return is the portfolio return minus the benchmark return, where the benchmark is appropriate to the manager’s style.
作者: burning0spear 时间: 2012-3-24 13:34
Given the following data, how is the manager’s performance most accurately characterized?
A)
| The manager earned an excess return from style but not from active management. |
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B)
| The manager earned an excess return from active management but not from style. |
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C)
| The manager earned an excess return from style and active management. |
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The manager earned a return from style, where the style return is the benchmark return minus the market return (6.30% − 4.30% = 2.00%). The manager did not earn a return from active management, where the active return is the manager’s return minus the benchmark return (5.20% − 6.30% = -1.10%).
作者: burning0spear 时间: 2012-3-24 13:34
Given the following data, how is the manager’s performance most accurately characterized?
A)
| The manager earned an excess return from active management but not from style. |
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B)
| The manager earned an excess return from style and active management. |
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C)
| The manager earned an excess return from style but not from active management. |
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The manager earned a return from active management, where the active return is the manager’s return minus the benchmark return (7.60% − 6.20% = 1.40%). The manager did not earn a return from style, where the style return is the benchmark return minus the market return (6.20% − 8.80% = -2.60%).
作者: burning0spear 时间: 2012-3-24 13:35
Which of the following is NOT regarded to be an essential characteristic of a valid benchmark? A)
| Reflective of past investment opinion. |
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B)
| Appropriate to the manager’s investment approach and style. |
|
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The benchmark has seven characteristics. All of the above are included with the exception of ‘reflective of past investment opinion,’ it should be reflective of current investment opinion, and the manager should have current knowledge and expertise of the securities in the benchmark.
作者: burning0spear 时间: 2012-3-24 13:35
One of the properties of a valid benchmark is that it be reflective of current investment opinion. Which of the following is the most accurate explanation of this property? A)
| The manager should have knowledge of the securities in the benchmark. |
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B)
| The manager should accept the applicability of the benchmark. |
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C)
| The securities in the benchmark should be those favored by a majority of analysts. |
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The property that a benchmark should be reflective of current investment opinion refers to the fact that the manager should have knowledge and expertise of the securities in the benchmark. That the manager should accept the applicability of the benchmark refers to the accountable property of a valid benchmark.
作者: burning0spear 时间: 2012-3-24 13:35
Which of the following is least likely to be a property of a valid benchmark? A)
| The benchmark is consistent with the manager’s style. |
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B)
| The weights of the securities in the benchmark should be based on market values. |
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C)
| It is possible for the investor to replicate the benchmark. |
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The security weights in a benchmark should be clearly identified but there is no stipulation that a valid benchmark have security weights based on market values.
作者: burning0spear 时间: 2012-3-24 13:36
Custom security-based benchmarks reflect the manager’s investment universe, weighted to reflect a particular approach. Which of the following is NOT an advantage of this type of benchmark? A)
| Allows fund sponsors to effectively allocate risk across investment management teams. |
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B)
| It meets all the required benchmark properties and all of the benchmark validity criteria. |
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C)
| It is cheap to construct and easy to maintain. |
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A major disadvantage of custom security-based benchmarks is that they can be expensive to construct and maintain. The other statements are regarded to be advantages of using custom security-based benchmarks.
作者: burning0spear 时间: 2012-3-24 13:36
All of the following would be regarded as a specific disadvantage of factor-based-models, EXCEPT: A)
| it is possible to construct multiple benchmarks, all having the same factor exposures but with different returns. |
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B)
| the benchmark may not be investable. |
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C)
| the manager’s style may deviate from the style reflected in the benchmark. |
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The manager’s style may deviate from the style reflected in the benchmark is a weakness of broad based market indexes not factor-model-based benchmarks. The other statements are regarded to be disadvantages of factor-model-based benchmarks.
作者: burning0spear 时间: 2012-3-24 13:36
Which of the following statements about style indexes is least accurate? A)
| Some style indexes can contain weightings in certain securities and/or sectors that may be larger than considered prudent. |
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B)
| They are widely available, widely understood and widely accepted. |
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C)
| They help fund sponsors better understand a manager’s investment style, by capturing factor exposures. |
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Helping fund sponsors better understand a manager’s investment style, by capturing factor exposures is an advantage of factor models and not style indexes. The other statements are true in the context of style indexes.
作者: burning0spear 时间: 2012-3-24 13:36
Which of the following statements best describes the steps required to construct a custom security-based benchmark? A)
| 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. |
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B)
| 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. |
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C)
| 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. |
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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.
作者: burning0spear 时间: 2012-3-24 13:37
Which of the following is least likely to be a step in the construction of a custom security-based benchmark? A)
| Use the same weights for the benchmark as the manager. |
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B)
| Calculate the historical mean and standard deviation for the benchmark. |
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C)
| Identify the manager’s investment process. |
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Although calculating the historical mean and standard deviation for the benchmark is something that many portfolio managers will do, it is not specified as one of the steps in the construction of a custom security-based benchmark.
作者: burning0spear 时间: 2012-3-24 13:37
Which of the following is least likely to be a step in the construction of a custom security-based benchmark? A)
| Use the same assets for the benchmark as the manager. |
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B)
| Rebalance the portfolio on a periodic basis. |
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C)
| Minimize misfit risk for the benchmark. |
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Misfit risk results from differences between the manager’s normal portfolio and the broader asset class benchmark. In a custom security-based benchmark, there will be and should be misfit risk if the manager’s style is different than the broad market and if the custom benchmark accurately reflects the manager’s style.
作者: burning0spear 时间: 2012-3-24 13:37
Which of the following best describes the impact of survivorship bias on using manager universes as benchmarks? A)
| 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. |
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B)
| Fund sponsors will terminate underperforming managers, underperforming accounts will not survive, and the median will be biased upwards. |
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C)
| Fund sponsors are reluctant to terminate underperforming funds, these accounts survive in the benchmark, and the median will be biased downwards. |
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The evidence is clear. Fund sponsors will rationally terminate underperforming managers, underperforming accounts will not survive, and the median will be biased upwards. Fund sponsors demonstrate little appetite for underperforming accounts and they are quickly removed.
作者: burning0spear 时间: 2012-3-24 13:38
Fund Sponsors often use the median account in a particular universe of account returns as an appropriate benchmark. This form of benchmark has a number of drawbacks. Which of the following is NOT a drawback that would be associated with using the median account as a benchmark? A)
| It is virtually impossible to identify the median manager in advance. |
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B)
| It is not measurable as its value cannot be determined on a reasonably frequent basis. |
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C)
| As the median manager is unknown, the measure is ambiguous. |
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There are seven properties of a valid benchmark. With regard to the median account approach, its value is measurable. This is probably the only criteria that the median manager approach satisfies. The other statements are true of the median account.
作者: burning0spear 时间: 2012-3-24 13:38
Which of the following best characterizes manager universes as a benchmark? Manager universes: A)
| are a valid benchmark because they are measurable. |
|
B)
| are not a valid benchmark because they are not measurable. |
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C)
| are not a valid benchmark because they are not investable. |
|
Manager universes are not a valid benchmark because they are not investable, are not specified in advance, and are not unambiguous. It is also impossible to determine if they are appropriate due to the ambiguity of the median manager. Furthermore, the performance records of poor managers are dropped from manager universes so there is an upward bias (i.e., survivorship bias) where the median manager’s return is inflated. The only property of a valid benchmark that manager universes fulfill is that they are measurable.
作者: burning0spear 时间: 2012-3-24 13:38
Consider the following relationships:
A = P – B
S = B – M
where:
A = the management’s active management decisions
P = the investment manager’s portfolio return
B = the benchmark return
S = the manager’s investment style
M = the market index
In the context of systematic bias which of the following outcomes is most desirable?
A)
| A manager's active returns should be positively correlated with the manager’s investment style. |
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B)
| A manager’s active returns should be negatively correlated with the manager’s investment style. |
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C)
| A manager’s active returns should be uncorrelated with the manager’s investment style. |
|
A manager’s active returns should be uncorrelated with the manager’s investment style.
作者: burning0spear 时间: 2012-3-24 13:39
Which of the following statements with regard to tests of benchmark quality is CORRECT? A)
| Tracking error is defined as the variance of the excess returns earned due to active management. |
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B)
| An active position is the difference between the weight of a security in the managed portfolio versus the benchmark. |
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C)
| An account’s exposure to systematic risk should be similar to those of the benchmark at all times. |
|
Tracking error is defined by standard deviation not variance. Exposure to systematic risk does not need to be the same at all times rather it should average that of the benchmark. The correct statement is the one in relation to active positions.
作者: burning0spear 时间: 2012-3-24 13:39
There should be minimal systematic bias in the benchmark relative to the account. Which of the following statements about systematic bias is least accurate? A)
| A beta significantly below one would be ideal as this would indicate that the manager’s account is significantly less risky than the benchmark. |
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B)
| A manager's active decisions should be uncorrelated with the manager’s investment style. |
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C)
| The manager can calculate the historical beta of the account to the benchmark. |
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Ideally, the manager would be looking for a beta close to one. This would indicate that the portfolio and benchmark are sensitive to the same systematic factors, which would be a desirable characteristic. If the beta differs significantly from one, the benchmark may be responding to a different set of factors, which is not a desirable characteristic of a benchmark.
作者: burning0spear 时间: 2012-3-24 13:39
With regard to the use of value added return in the measurement of hedge fund performance, which of the following statements is most accurate? A)
| Although weights sum to zero a return is calculated by summing the performance impacts of the individual long positions. |
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B)
| Value added return is simply the difference between the portfolio return and the benchmark return. |
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C)
| Value added return is calculated as the difference between the portfolio return, given benchmark weightings, and the actual portfolio return. |
|
To replicate a zero net asset hedge fund the weights must add to zero. Calculation of return is achieved by summing the individual long and short positions and the value added return is the difference between the portfolio return and the benchmark return.
作者: burning0spear 时间: 2012-3-24 13:39
The Sharpe ratio has become a commonly used performance measure for hedge funds. Which of the following statements in relationship to the use of the Sharpe ratio in the assessment of hedge fund performance is least accurate? A)
| The Sharpe ratio is the excess returns to the volatility encountered in earning them. |
|
B)
| A hedge fund’s Sharpe ratio can be compared to that of a universe of similar hedge funds. |
|
C)
| The use of derivatives positions in a hedge fund removes most of the skewness in returns making the use of standard deviations appropriate. |
|
It is clear that for a significant number of hedge funds returns demonstrate a significant degree of skewness often created by the use of derivative positions. The other statements are correct.
作者: burning0spear 时间: 2012-3-24 13:40
Which of the following would be regarded as the least appropriate method to measure the performance of a hedge fund? |
B)
| Separate long/short benchmarks. |
|
C)
| Relative performance comparisons with traditional benchmarks. |
|
Construct a separate long and short benchmark, which can then be combined together in their relevant proportions. The Sharpe ratio compares the return to risk free rather than a benchmark. Relative performance using traditional benchmarks is the least appropriate given hedge funds concentration on absolute returns and the lack of reliable traditional benchmarks.
作者: burning0spear 时间: 2012-3-24 13:40
There are two basic forms of performance attribution, micro and macro attribution. Which of the following statements about the two approaches is most accurate?
| Macro Performance | Micro Performance |
A)
| At fund sponsor level,
rate-of-return and value metric | At investment manager level,
rate-of-return and value metric |
|
|
B)
| At investment manager level,
rate-of-return metric only | At fund sponsor level,
rate-of-return metric |
|
|
C)
| At fund sponsor level,
rate-of-return metric only | At investment manager level,
rate-of-return metric only |
|
|
Macro performance is carried out at the fund sponsor level, micro performance at the investment manager level. Both rate-of-return (percentage terms) and value metrics (monetary terms) are used.
作者: burning0spear 时间: 2012-3-24 13:40
Which of the following is the least likely to be an input into micro performance evaluation? A)
| The sector return for the manager. |
|
B)
| The return on the risk-free asset. |
|
C)
| The weight of a sector in the benchmark. |
|
The return on the risk-free asset is not an input into micro performance evaluation but it would be used as an input into macro performance evaluation.
作者: burning0spear 时间: 2012-3-24 13:41
Frank Busby is on the board for a pension fund and would like to evaluate the fund’s performance and determine its sources of return. Which of the following is Busby most likely to utilize? A)
| Micro performance evaluation. |
|
B)
| Performance decomposition analysis. |
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C)
| Macro performance evaluation. |
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Macro performance evaluation is performed at the fund sponsor level. It decomposes fund performance into that from net contributions, the risk-free asset, asset categories, benchmarks, investment managers, and allocation effects.
作者: burning0spear 时间: 2012-3-24 13:41
Which of the following would be least appropriate in macro performance evaluation? A)
| A benchmark return is calculated as a weighted average of the individual managers' benchmark returns. |
|
B)
| Market indices would be used for manager styles. |
|
C)
| External cash flows would be used to determine the impact of the sponsor’s decision making. |
|
Broad market indices would be used for asset categories. Narrow indices would be used for manager’s investment styles.
作者: burning0spear 时间: 2012-3-24 13:41
Which of the following is least likely to be utilized in macro performance evaluation? A)
| Pure sector allocation effects. |
|
B)
| Beginning of period fund valuations. |
|
C)
| External cash flows into the fund. |
|
Pure sector allocation effects result from micro performance evaluation. The inputs to macro performance evaluation include policy allocations, benchmark portfolio returns, fund returns, fund valuations, and external cash flows.
作者: burning0spear 时间: 2012-3-24 13:42
Which of the following is NOT required for macro performance attribution? A)
| Tactical asset allocations. |
|
B)
| Benchmark portfolio returns. |
|
C)
| Fund returns, valuations, and external cash flows. |
|
There are three main inputs into the macro attribution approach:
1) policy allocations
2) benchmark portfolio returns and
3) fund returns, valuations and external cash flows.
作者: burning0spear 时间: 2012-3-24 13:42
In comparing macro and micro performance attribution methodologies to evaluate the drivers of investment performance, it is most correct to say that: A)
| micro evaluation is an incremental approach and macro evaluation focuses on deviations from benchmarks. |
|
B)
| both macro and micro evaluation focus on the deviations from benchmarks. |
|
C)
| macro evaluation is an incremental approach and micro evaluation focuses on deviations from benchmarks. |
|
This is the most correct statement. The macro evaluation looks at the beginning and ending values of the entire fund and attributes the return contributed at each level of decision making. Micro evaluation looks at individual portfolios and tries to explain its return with respect to its deviation from a benchmark.
作者: burning0spear 时间: 2012-3-24 13:42
Kelli Blakely, a portfolio manager with the Miranda Fund, a large cap index fund, achieved a 10.2% return during the past year while the S&P 500 lost 22.5% for the same period.
Her portfolio consisted of stocks and cash.
Blakely was able to produce such returns through her exceptional market timing and securities selection skills.
During the year, the S&P exhibited a standard deviation of 44% while Blakely’s portfolio standard deviation was 37%.
The calculated beta on the Miranda Fund was 1.10.
The market proxy and benchmark for performance measurement purposes is the S&P 500.
Using the S&P 500 as a benchmark for the year, the allocation between stock and cash was a constant 97% and 3%, respectively.
During the year, Blakely was concerned that the combination of a weak economy and geopolitical uncertainties would negatively impact the market returns.
Taking a bold step, she changed her market allocation to an average of 50% in stocks and 50% in cash.
Throughout the year, the risk-free rate of cash returns was 2%.
What is the total value added?
total value-added = overall actual fund return – overall benchmark returns
= 10.2 − (-22.5) = 32.70%Blakely’s Miranda Fund was able to outperform the S&P 500 index by 32.7%.
作者: burning0spear 时间: 2012-3-24 13:42
Value added return is defined as the: A)
| fund return minus the risk-free rate of return. |
|
B)
| portfolio return minus the benchmark return. |
|
C)
| portfolio return in excess of the return predicted based on the Capital Asset Pricing Model. |
|
Value added return = Portfolio return – Benchmark return
作者: manchester88 时间: 2012-3-24 13:44
Which of the following statements regarding attribution analysis, benchmarks, and evaluating portfolio managers is CORRECT? A)
| Attribution analysis for bonds is virtually impossible. |
|
B)
| Benchmark error is nonexistent with the Treynor measure. |
|
C)
| Attribution analysis separates a portfolio manager's performance into an allocation effect and a selection effect. |
|
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.
作者: manchester88 时间: 2012-3-24 13:44
Which of the following are examples of an asset allocation strategy used by a portfolio manager? |
B)
| Both market timing and sector rotation. |
|
C)
| Selecting assets within a market segment that will outperform the assets contained within the corresponding benchmark index. |
|
Both market timing and sector rotation are examples of asset allocation strategies.
作者: manchester88 时间: 2012-3-24 13:44
The results of a macro performance attribution analysis of a fund is listed below.
| Fund Value |
Beginning value | $100,000 |
Net contributions | 100,000 |
Risk-free asset | 101,000 |
Asset category | 108,000 |
Benchmarks | 109,000 |
Investment strategies | 110,000 |
Allocation effects | 112,000 |
Had the manager only engaged in a pure index approach, instead of 12%, the return of the fund would have been:
Return = 8% = ($108,000 − $100,000)/$100,000.
The Asset Category investment strategy assumes that the Fund’s beginning value and external cash flows are invested passively in a combination of the designated asset category benchmarks, with the specific allocation to each benchmark based on the fund sponsor’s policy allocation to those asset categories. In essence, this approach is a pure index fund approach. The asset category corresponds to a pure index approach. The dollar return would have been $8,000 or 8% on the initial $100,000.
作者: manchester88 时间: 2012-3-24 13:45
In using micro attribution analysis to break down the performance of the manager of a fund, the analyst finds the following for a particular asset class:| Portfolio Weight | 9% |
| Sector Benchmark Weight | 7% |
| Sector Portfolio Return | 4% |
| Sector Benchmark Return | 3% |
| Benchmark Return | 0.2% |
Based upon these numbers, the within sector selection return would be:
The micro attribution breakdown is below:
Pure sector allocation return:
= [0.09 – 0.07] × [.03 – 0.002]
= 0.056%
Within sector selection return:
= 0.07 × [.04 – .03]
= 0.07%
Allocation/selection interaction return:
= [0.09 – 0.07] × [.04 – .03]
= 0.02%
作者: manchester88 时间: 2012-3-24 13:45
An analyst has gathered the following asset allocations and returns, including an appropriate benchmark, covering the past twelve months for the Triad Fund.
| Fund and Benchmark Weights | Fund and Benchmark Returns |
Asset Class | Fund | Benchmark | Fund | Benchmark |
Stock | 0.65 | 0.50 | 17.00 | 13.80 |
Bonds | 0.25 | 0.40 | 8.10 | 8.30 |
Cash | 0.10 | 0.10 | 3.85 | 4.05 |
The value added to the Triad Fund returns attributable to the pure sector allocation effect is:
Attributable to the pure sector allocation effect: (0.65 – 0.50)(13.8 – 10.63) + (0.25 – 0.40)(8.3 – 10.63) + (0.10 – 0.10)(4.05 – 10.63) = 0.83%.
The benchmark return is calculated as the weighted average of individual asset returns in the benchmark: (.5 x 13.8) + (.4 x 8.3) + (.1 x 4.05) = 10.63%
The value added to the Triad Fund returns attributable to the within-sector selection effect is:
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%.
作者: manchester88 时间: 2012-3-24 13:46
Robert Brown is in the process of decomposing the various sources of return to his bond portfolio that yielded a return of 10%. The actual treasury yield was 8%, which is 0.5% better than the expected yield of 7.5%. In addition, Brown has ascertained that his portfolio benefited by 0.50% due to sector allocation and 0.25% from allocation/selection interaction. Based on this information, how much of the portfolio's overall return is attributable to within-sector selection?
| 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% |
作者: manchester88 时间: 2012-3-24 13:46
You have performed attribution analysis for the XVX Portfolio and have determined that the sector effect was 0.322%, the within-sector selection was -0.157%, and the allocation/selection effect was 0.061%. The benchmark return was 8.441%. How much was the manager’s total value added for XVX, and what was the XVX Portfolio’s return during the period?
Total value added = 0.322 + (−0.157) + 0.061 = 0.226%. Portfolio return = 8.441 + 0.226 = 8.667%.
作者: manchester88 时间: 2012-3-24 13:47
Which of the following statements relating to allocation/selection attribution and fundamental factor model attribution is least accurate? A)
| The strength of allocation/selection attribution is that it disaggregates performance effects of manager’s decisions between sectors and securities. |
|
B)
| The strength of allocation/selection attribution is that it is relatively easy to calculate. |
|
C)
| The strength of fundamental factor analysis is its simplicity and the reliability of the correlations it produces. |
|
A key weakness of fundamental factor model attribution is that it can prove to be complex leading to the potential for spurious correlations.
作者: manchester88 时间: 2012-3-24 13:48
Which of the following is NOT a recognized weakness of allocation/selection attribution? A)
| Security selection decisions have a knock on effect on sector weighting decisions. |
|
B)
| Can be confusing as it reflects the joint effect of allocating weights to both securities and sectors. |
|
C)
| Exposures to the factors need to be determined at the start of an evaluation period. |
|
Exposure to the factors need to be determined at the start of an evaluation period is a weakness of fundamental factor model attribution.
作者: manchester88 时间: 2012-3-24 13:48
Which of the following steps in the constructions of a suitable fundamental factor micro attribution is least accurate? A)
| Identify the fundamental factors that determine unsystematic returns. |
|
B)
| Determine the performance of each of the factors. |
|
|
It is necessary to determine the fundamental factors that determine the systematic (no unsystematic) returns. Both of the other statements are correct.
作者: manchester88 时间: 2012-3-24 13:48
Which of the following statements regarding fundamental factor model micro attribution is least accurate? A)
| The results will look very similar to a returns-based style analysis. |
|
B)
| The results will indicate the source of portfolio returns, based upon benchmark factor exposures versus the manager’s normal factor exposures. |
|
C)
| It will be necessary to identify the fundamental factors that will generate systematic returns. |
|
The results will indicate the source of portfolio returns, based upon actual factor exposures (not benchmark) versus the manager’s normal factor exposures. Both of the other statements are true in the context of fundamental factor model micro attribution
作者: manchester88 时间: 2012-3-24 13:49
Which of the following would be least likely to be used in both returns based style analysis and fundamental factor model micro attribution? A)
| The amount of leverage used in the fund. |
|
B)
| The sensitivities of the portfolio to index returns. |
|
C)
| The returns to a small-cap stock index. |
|
Both returns based style analysis and fundamental factor model micro attribution would utilize the returns to various indices as well as the sensitivities to the indices. However, returns based style analysis would not examine fundamental factors such as the leverage in the fund and the size of the stocks in the fund.
作者: manchester88 时间: 2012-3-24 13:49
Which of the following least accurately characterizes fundamental factor model attribution and allocation/selection attribution? A)
| Allocation/selection attribution can lead to spurious correlations. |
|
B)
| Allocation/selection attribution is relatively easy to calculate. |
|
C)
| Security weights need to be determined at the start of the evaluation period in allocation/selection attribution. |
|
It is actually fundamental factor model attribution that can lead to spurious correlations because the analysis is quite complex.
作者: manchester88 时间: 2012-3-24 13:49
Which of the following statements in relation to the effect of the external interest environment is least accurate? A)
| Return on the default-free benchmark assumes no change in the forward rates. |
|
B)
| The return due to the external interest rate environment is estimated from a term structure analysis of AAA rate corporate securities. |
|
C)
| 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 Treasury securities. We are trying to establish the return on a default free bond portfolio, therefore the use of corporate securities would be inappropriate.
作者: manchester88 时间: 2012-3-24 13:50
The following are a number of contributions to return for a fixed-income portfolio: - Return on interest rate management
- Return on trading activity
- Return due to changes in forward rates
- Return on the default-free benchmark
Which of the above statements is (are) CORRECT?
| Effect of External Interest Environment | Contribution of the Management Process |
Changes in forward rates and the return on the default free benchmark are outside of the manager’s influence and are therefore part of the external interest environment. Interest rate management and trading activity are an integral part of the role of the manager and are therefore part of the management process. Remember we could also include return from sector/quality management and return from the selection of specific securities.
作者: manchester88 时间: 2012-3-24 13:51
Bill Carter, CFA and Bob Walters, CFA are analyzing the recent return of several funds they have been assigned to manage. The funds are Fund A, Fund B, Fund C, and Fund D as indicated in the table below.
| |
Fund A |
Fund B |
Fund C |
Fund D |
Market |
Return | |
7.80% |
7.20% |
8.20% |
7.60% |
7.00% |
Beta | |
1.10 |
0.90 |
1.20 |
1.05 |
1.00 |
Return Std.Dev. | |
4.00% |
3.44% |
4.15% |
3.50% |
3.55% |
Tracking Error* | |
0.82% |
0.45% |
1.02% |
0.67% |
|
*Tracking error is the standard deviation of the difference between the Fund Return and the Market Index Return |
The risk-free rate of return for the relevant period was 3.5%.
The management of the firm that Carter and Walters works for is very proud of the fact that all of the four funds had a higher return than the overall market as indicated on the table. The firm’s management wants to advertise how, using the market as a benchmark, these funds have had returns higher than that benchmark. The firm’s management asks Carter and Walters to compute several performance measures such as the Treynor measure, the Sharpe ratio, and the M2 measure. The firm’s management also asks for the construction of quality control charts.
In going over the results, Carter is skeptical of the results and using the market as a benchmark because that benchmark was not specified in advance. Walters says that he is skeptical too because it is not clear if the market is an appropriate benchmark in all cases. They want to proceed cautiously because the firm’s management recently instituted policies for manager continuation. For each manager, the firm’s management has set up the null hypothesis that a manager has no skill and the alternative hypothesis is that the manager has skill in adding value.
Carter and Walters discuss constructing a custom benchmark for some of these or other funds they might manage. A few of these funds hold cash positions to take advantage of good investment opportunities when they arise. Carter says that the benchmark they construct should include cash in the weighting scheme. They set aside a few weeks to construct a preliminary benchmark for several funds. Walters wants to be thorough, because once they construct the benchmark, he doesn’t plan to make any modifications to the custom benchmark.The portfolio with the highest Sharpe ratio is:
The formula for the Sharpe ratio is:
For funds A, B, C, and D, the respective Sharpe ratios are 1.075, 1.076, 1.134, and 1.171. Fund D is the highest calculated as: (7.6 – 3.5)/3.5 = 4.1/3.5 = 1.171. (Study Session 17, LOS 41.j, p)
What is the M2 measure for fund D?
The formula for the M2 measure is:
M2Portfolio D = 7.659% = 3.5% + (7.6% − 3.5%) × (3.55%/3.5%).
(Study Session 17, LOS 41.p)
If the returns of each fund were plotted over a quality control chart using the market as a benchmark, the final point of the value-added line would be above zero, i.e., above the horizontal axis for: |
B)
| all of the funds except C only. |
|
|
Since all of the funds’ returns are higher than the benchmark for the period, all of the funds would have a positive end point for the cumulative value-added line. (Study Session 17, LOS 41.r)
With respect to the reasons for Carter and Walters being skeptical of using the market as a benchmark: A)
| both Carter and Walters are wrong. |
|
B)
| both Carter and Walters are correct. |
|
C)
| Carter is wrong and Walters is correct. |
|
Their objections are both justified. A benchmark should be specified in advance and deemed appropriate for the style of the fund. (Study Session 17, LOS 41.j)
With respect to the considerations that Carter and Walters put into preparing a custom benchmark, including a weighting for cash and not making modifications: A)
| Carter is wrong and Walters is correct. |
|
B)
| Carter and Walters are both correct. |
|
C)
| Carter is correct and Walters is wrong. |
|
Carter is correct in that a custom benchmark should include an appropriate weight for cash holdings. Walters is wrong in that a benchmark should be modified on a preset schedule. (Study Session 17, LOS 41.l)
The firm that Carter and Walters work for have set up a null hypothesis for each manager. In such a case, the firm would make a type II error if it: A)
| fires a skilled manager. |
|
B)
| keeps an unskilled manager. |
|
C)
| hires a second manager to help a doubtful manager. |
|
In this case, we assume a manager does not add value and try to gather information that the manager does. Without sufficient evidence to prove value is added, the manager would be fired. Random noise could lead to this conclusion even though the manager does add value. (Study Session 17, LOS 41.t)
作者: manchester88 时间: 2012-3-24 13:51
An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period. Equity Fund S&P 500
Return 27% 29%
Standard Deviation 33% 20%
Beta 0.95 1.00
Risk-free rate is 4.00%
The Treynor measure and the Sharpe ratio, in that order, for the S&P 500 are:
Treynor measure: (0.29 – 0.04)/1.00 = 0.25
Sharpe ratio: (0.29 – 0.04)/0.20 = 1.25
作者: manchester88 时间: 2012-3-24 13:51
An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period. Equity Fund S&P 500
Return 32% 26%
Standard Deviation 41% 29%
Beta 0.98 1.00
Risk-free rate is 6.00%
The difference between the Sharpe ratio for the equity fund and the Sharpe ratio for the S&P 500 is the:
A)
| S&P 500 is 0.04 lower. |
|
B)
| equity fund is 0.06 lower. |
|
C)
| S&P 500 is 0.09 higher. |
|
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
作者: manchester88 时间: 2012-3-24 13:52
An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period. Equity Fund S&P 500
Return -12% -16%
Standard Deviation 15% 19%
Beta 1.18 1.00
Risk-free rate is 6.00%
The difference between the Treynor measure for the equity fund and the Treynor measure for the S&P 500 is:
The equity fund: (-0.12 – 0.06)/1.18 = -0.15
The S&P 500: (-0.16 – 0.06)/1.00 = -0.22
The equity fund is (-0.15 – (-0.22) = 0.07 higher
作者: manchester88 时间: 2012-3-24 13:52
Jensen’s alpha for a portfolio measures the: A)
| fund’s return in excess of the required rate of return given the unsystematic risk of the portfolio. |
|
B)
| difference between a fund’s return and the market return. |
|
C)
| fund’s return in excess of the required rate of return given the systematic risk of the portfolio. |
|
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 the capital asset pricing model, given the fund’s systematic risk.
作者: manchester88 时间: 2012-3-24 13:52
The Treynor measure is correctly defined as a measure of a fund’s: A)
| return earned compared to its systematic risk. |
|
B)
| excess earned compared to its systematic risk. |
|
C)
| return earned compared to its unsystematic risk. |
|
The Treynor measure is defined as a fund’s excess return (fund’s return minus the risk-free rate) divided by its systematic risk (beta).
作者: manchester88 时间: 2012-3-24 13:53
An analyst has generated the following information about risk/return performance using the Sharpe ratio and the Treynor measure: | | Equity Fund | S&P 500 |
| Sharpe ratio | 0.47 | 0.42 |
| Treynor measure | 0.31 | 0.34 |
Which of the following statements about the relative risk/return performance of the funds is CORRECT?A)
| The Treynor measure shows the fund outperformed the S&P 500 on a systematic risk-adjusted basis. |
|
B)
| The Sharpe ratio shows the equity fund outperformed the S&P 500 on a total risk- adjusted basis. |
|
C)
| The Treynor measure shows the fund underperformed the S&P 500 on a total risk-adjusted basis. |
|
With either the Sharpe or Treynor methodology, a higher number means a higher risk-adjusted return. Since the Sharpe ratio is 0.05 higher, it outperformed the S&P 500. Note that the key difference between the Sharpe and Treynor measures is that the Sharpe ratio measures return per unit of total risk, while Treynor measures return per unit of systematic risk.
作者: manchester88 时间: 2012-3-24 13:53
An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period. Using Jensen’s Alpha to measure the risk/return performance of the Equity fund and the S&P 500, which of the following conclusions is CORRECT? | | Equity Fund | S&P 500 |
| Return | 23% | 27% |
| Standard Deviation | 15% | 19% |
| Beta | 1.09 | 1.00 |
| Risk-free rate is 3.50% | | |
A)
| The equity fund underperformed the S&P 500 by 6.12%. |
|
B)
| The S&P 500 underperformed the equity fund by 2.67%. |
|
C)
| The S&P 500 outperformed the equity fund by 3.24%. |
|
Jensen’s Alpha: 0.23 – [0.035 + (0.27 – 0.035)1.09] = -0.0612 or -6.12%. The negative means it underperformed the S&P 500.
作者: manchester88 时间: 2012-3-24 13:53
Which of the following statements about risk/return investment manager performance measures is least accurate? A)
| The Sharpe measure includes company-specific risk as part of its performance measurement. |
|
B)
| The Treynor measure includes company-specific risk as part of its performance measurement. |
|
C)
| When measuring the performance of an equity fund, if the Sharpe ratio is 0.55, and the Treynor measure is 0.47, the difference is attributable to unsystematic (company-specific) risk. |
|
The Treynor measure does not include company-specific risk, it uses beta in the denominator, which only measures systematic risk. Note that the Sharpe measure uses standard deviation in its denominator, which is a measure of total risk.
作者: manchester88 时间: 2012-3-24 13:55
The Sharpe Ratio is correctly defined as a measure of a fund’s: A)
| excess return earned compared to its systematic risk. |
|
B)
| return earned compared to its total risk. |
|
C)
| excess return earned compared to its total risk. |
|
The Sharpe ratio is defined as a fund’s excess return (fund’s return minus the risk-free rate) divided by the total risk (standard deviation).
作者: manchester88 时间: 2012-3-24 13:55
The following performance data for an actively managed portfolio and the S&P 500 Index is reported: | Actively Managed Portfolio | S&P 500 |
| Return | 50% | 20% |
| Standard deviation | 18% | 15% |
| Beta | 1.1 | 1.0 |
Risk-free rate = 6%. Determine the Sharpe measure, Treynor measure, and Jensen's alpha for the actively managed portfolio. A)
| Sharpe measure = 1.04; Treynor measure = 0.14; Alpha = 0.04. |
|
B)
| Sharpe measure = 2.44; Treynor measure = 0.40; Alpha = 0.29. |
|
C)
| Sharpe measure = 1.05; Treynor measure = 0.17; Alpha = 0.04. |
|
Sharpe measure for active portfolio = (0.50 − 0.06)/0.18 = 2.44 Treynor measure for active portfolio = (0.50 − 0.06)/1.1 = 0.40
Alpha for active portfolio = 0.50 − [0.06+(0.20 − 0.06) × 1.1)] = 0.29
Based on the results from determining the Sharpe measure, Treynor measure, and Jensen's alpha for the actively managed portfolio, does the portfolio manager outperform or underperform the S&P 500 index? A)
| Sharpe measure → underperform; Treynor measure → outperform; Alpha → outperform |
|
B)
| Sharpe measure → outperform; Treynor measure → outperform; Alpha → outperform. |
|
C)
| Sharpe measure → outperform; Treynor measure → underperform; Alpha → underperform. |
|
Sharpe measure for S&P portfolio = (0.20 − 0.06)/0.15 = 0.93 Treynor Measure for S&P portfolio = (0.20 − 0.06)/1.0 = 0.14 Alpha for S&P portfolio = 0
Hence, the portfolio manager outperforms based on all the three performance evaluation methods.
作者: manchester88 时间: 2012-3-24 13:55
The following figures provide performance data for two managers, Cumulus Managers and Saturn Managers. The benchmark return is 12% and its standard deviation is 25%. The risk-free rate is 4.2%.
| Cumulus | Saturn |
| Return | 15.0% | 18.0% |
Standard Deviation | 29.0% | 33.0% |
Beta | 0.9 | 1.3 |
Which of the following would be the most appropriate conclusion regarding their relative performance, using the M2 measure and the Treynor ratio?
A)
| Saturn is the superior manager using both the M2 measure and the Treynor ratio. |
|
B)
| Saturn is the superior manager using the M2 measure but not the Treynor ratio. |
|
C)
| Cumulus is the superior manager using both the M2 measure and the Treynor ratio. |
|
To calculate the M-squared ratio for Cumulus, use the following formula:
We would compare the 13.51% to the return on the market of 12% and conclude that the Cumulus Fund has superior performance. Using the same formula as above, the M-squared measure for the Saturn fund is 14.65%, which indicates that the Saturn fund has superior performance relative to both the market and Cumulus fund.
The Treynor ratio for Cumulus would be calculated as:
The Treynor ratio for the Saturn fund is 10.6, which indicates that the Cumulus fund has superior performance relative to the Saturn fund.
The discrepancy between the two measures is because the M-squared measure uses the standard deviation (total risk) as the measure of risk whereas the Treynor ratio uses beta (systematic risk). The Cumulus fund is poorly diversified relative to the Saturn fund. When unsystematic risk is captured in the M-squared measure, the Cumulus fund is not as attractive as the Saturn fund.
作者: manchester88 时间: 2012-3-24 13:56
Which of the following statements regarding diversification and risk adjusted performance measures is least accurate? A)
| Treynor's performance measure should be used to evaluate portfolios that will be an addition to an overall larger portfolio. |
|
B)
| Treynor's performance measure assumes a well diversified portfolio. |
|
C)
| Investors want their portfolio managers to completely diversify their portfolios. |
|
If a portfolio manager completely diversifies (i.e., eliminates all non-systematic risk), then the appropriate rate of return would be that of the market. However, why would you pay active management fees to get the same return of a passively managed index product? Treynor uses beta as its risk measure, which means that it should be used in the context of a diversified portfolio.
作者: manchester88 时间: 2012-3-24 13:56
Which of the following statements about the evaluation of portfolio performance is least accurate? A)
| In the decomposition of portfolio performance, a naive portfolio is constructed with its standard deviation set equal to the total risk of the manager's portfolio that is being evaluated. |
|
B)
| When using the Sharpe ratio, the portfolio with the highest capital allocation line (CAL) slope is the best portfolio. |
|
C)
| The security market line (SML) represents an active investment strategy when Jensen's Alpha is used as the measure for portfolio performance. |
|
The SML is a passive strategy in that the investor invests in a combination of the market portfolio and the risk free asset. Jensen’s Alpha measures the value added return due to active management.
作者: manchester88 时间: 2012-3-24 13:57
Of the Sharpe, Treynor, and Jensen’s Alpha measures, when measuring the risk/return performance of actively managed portfolios, which is the most appropriate to use? |
|
C)
| Both measures are equally appropriate. |
|
Jensen’s Alpha measures the value added of an active portfolio strategy.
作者: ikoreaii 时间: 2012-3-24 13:59
Of the Sharpe, Treynor, and Jensen’s Alpha measures, when dealing with a sector fund which will be added to the investor’s overall larger portfolio, which is the most relevant measurement technique to assess relative risk/return performance? A)
| Both measures are equally appropriate. |
|
|
|
The Treynor measure calculates excess return relative to systematic risk and should be used to evaluate portfolios that will be an addition to an overall larger portfolio. Sharpe ratio, which uses standard deviation as the risk measure, should be used to evaluate portfolios that will comprise the majority of the investor’s overall asset base.
作者: ikoreaii 时间: 2012-3-24 14:00
The ratio of return to systematic risk for an investment portfolio is 0.70, while the market is 0.50. This information suggests that the portfolio: A)
| exhibits inferior performance because it has more risk than the market. |
|
B)
| exhibits superior performance because the return per unit of risk is above that of the market. |
|
C)
| is not diversified enough, and more securities should be purchased to bring the portfolio in line with the market. |
|
Risk-averse investors prefer a portfolio with a higher ratio of return to systematic risk to a portfolio with a lower ratio. In this case, we can also say that the portfolio would plot above the SML since the portfolio's ratio is above that of the market. Since portfolios that plot above the SML are undervalued, they are likely to provide an above average return. Note: The ratio (Treynor's Measure) implicitly assumes a diversified portfolio, hence the use of beta (or systematic risk) in the denominator.
作者: ikoreaii 时间: 2012-3-24 14:00
The Sharpe ratio, Treynor measure, the M2 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? A)
| The Sharpe ratio measures the slope of the capital allocation line (CAL), with the lowest slope having the most desirable risk/return combination. |
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B)
| Using the capital market line the M2 compares the account's return to the market return and is a comparative measure. |
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C)
| While the Treynor measure computes excess return per unit of risk, Jensen's Alpha measures differential return for a given level of risk. |
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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 given risk level, the higher the slope the greater the return.
作者: ikoreaii 时间: 2012-3-24 14:00
An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period. Equity Fund S&P 500
Return 21% 24%
Standard Deviation 19% 17%
Beta 1.05 1.00
Risk-free rate is 4.50%
The Sharpe ratio for the equity fund is:
(0.21 – 0.045)/0.19 = 0.87.
作者: ikoreaii 时间: 2012-3-24 14:01
An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period.
Equity Fund S&P 500
Return 13% 10.5%
Standard Deviation 22% 20%
Beta 1.21 1.00
Risk-free rate is 5.25%
The Treynor measure for the equity fund is:
(0.13 – 0.0525)/1.21 = 0.064.
作者: ikoreaii 时间: 2012-3-24 14:01
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)? |
B)
| Jensen's alpha and the Treynor measure. |
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Both the Treynor measure and the Jensen's alpha assume that the CAPM is the underlying risk-adjustment model. The Sharpe measure on the other hand does not make this assumption. It uses total risk of a portfolio, unlike the Treynor measure and Jensen's alpha, which use the systematic (undiversifiable) risk as measured by beta to compute the risk-adjusted return of a portfolio.
作者: ikoreaii 时间: 2012-3-24 14:02
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?
Sharpe Ratio = Sj = (Rj – RF) / σj = (12 − 4.50) / 16.80 = 0.45
What is the Treynor measure for Trumark Fund?
Treynor measure = Tj = (Rj – RF) / βj = (0.12 − .0450) / 1.35 = 0.0556
作者: ikoreaii 时间: 2012-3-24 14:02
Which of the following risk measures is NOT dependent on capital asset pricing model (CAPM)?
The Sharpe measure uses standard deviation as its risk measure. The Jensen measure uses beta.
作者: ikoreaii 时间: 2012-3-24 14:02
If a portfolio had an alpha of −10 bps, then the portfolio: A)
| earned 10 bps less than the market. |
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B)
| had less risk than the market. |
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C)
| earned 10 bps less than the market on a risk-adjusted basis. |
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Recall that Jensen’s alpha measures excess return for a given level of risk. It is a “risk-adjusted” measure of return.
作者: ikoreaii 时间: 2012-3-24 14:03
Which of the following statements about fund performance is CORRECT? A)
| 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%. |
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B)
| 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. |
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C)
| 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. |
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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.
作者: ikoreaii 时间: 2012-3-24 14:03
A portfolio manager has a well diversified portfolio and they are trying to determine whether or not to add a particular stock to the portfolio to increase the portfolio’s overall risk adjusted return. To decide whether or not to add the stock the manager will back test the portfolio based on historical data of the stock and the portfolio. The relevant measure to use in comparing the results of the back tested model comparing the results of the portfolio before and after the addition of the stock would be the:
The equations for the 3 measures are as follows:Treynor measure = (RP − RF) / βP
Sharpe ratio = (RP − RF) / σPInformation ratio = (RP − RB) / (σP − B)
The goal is to add a greater return to the portfolio without appreciably increasing the level of risk. Since the portfolio is already well diversified most of its risk is related to systematic risk (beta) which is the relevant measure of risk in the denominator of the Treynor measure. Adding one risky stock to an already diversified portfolio will not appreciably change the overall risk of the portfolio thus beta and the Treynor measure remain the relevant measures used to compare the results of the portfolio with and without the addition of the stock. The Sharpe ratio uses standard deviation in the denominator of the equation. Standard deviation is comprised of systematic risk (beta) and unsystematic risk. If the portfolio was not well diversified then most of the risk would be unsystematic or company specific risk. Adding one stock to an undiversified portfolio would most likely still leave a lot of unsystematic risk thus making standard deviation and the Sharpe ratio the relevant measures if the portfolio was undiversified. The information ratio is used to compare the return to a benchmark which is not a concern to the portfolio manager in this question.
作者: ikoreaii 时间: 2012-3-24 14:03
Which of the following measures would be the most appropriate one to use when comparing the results of two portfolios in which each portfolio contains only a few number of stocks representing a limited number of industries?
The equations for the 3 measures are as follows:Sharpe ratio = (RP − RF) / σP
Treynor measure = (RP − RF) / βPInformation ratio = (RP − RB) / (σP − B)
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 systematic market risk as the measure of risk in the denominator and the information ratio is best to use when comparing a portfolio to a benchmark.
作者: ikoreaii 时间: 2012-3-24 14:04
Which of the following measures would be the most appropriate one to use when comparing the results of two portfolios in which each portfolio contains many stocks from a broad selection of different industries?
The equations for the 3 measures are as follows:Treynor measure = (RP − RF) / βP
Sharpe ratio = (RP − RF) / σPInformation ratio = (RP − RB) / (σP − B)
Since both portfolios are well diversified most of their risk comes from systematic risk or beta and is tied to the general level of overall risk in the market. In this case the best measure to use would be the Treynor measure since this uses beta or systematic risk as the measure of risk. The Sharpe ratio uses standard deviation as the measure of risk in the denominator and the information ratio is best to use when comparing a portfolio to a benchmark.
作者: ikoreaii 时间: 2012-3-24 14:04
The Information ratio is also referred to as the benefit-cost ratio. What is cost defined as? A)
| The standard deviation of surplus returns. |
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B)
| The standard deviation of benchmark returns. |
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C)
| The standard deviation of portfolio returns. |
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The information ratio is calculated as the surplus return divided by the standard deviation of surplus returns. The cost in the information ratio is the standard deviation of surplus returns.
作者: ikoreaii 时间: 2012-3-24 14:04
Jack Gallon is a portfolio manager whose fund sponsor would like to evaluate his performance. It is very important to the fund sponsor to minimize tracking risk. Which of the following would be most appropriate for evaluating his performance? |
B)
| The information ratio. |
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The information ratio is the manager’s excess return (relative to a benchmark return) divided by the standard deviation of excess returns. Because it measures risk and return relative to a benchmark, it would be the most appropriate measure when the minimization of tracking risk is important.
作者: ikoreaii 时间: 2012-3-24 14:05
Jim Kyle has been the manager of the Superior Asset Portfolio for the past ten years. During this time, Superior’s average return was 14.50%. For the purpose of performance evaluation, the Superior Asset Portfolio is compared to the S&P 500. During the same time period, the S&P 500 had an average annual return of 18%. The standard deviation of surplus return is 23%. What is Superior’s information ratio?
Information ratio = IRj = SRj / σSR = (14.50 - 18) / 23 = -0.15
作者: ikoreaii 时间: 2012-3-24 14:05
Which of the following statements regarding the Sharpe ratio is most accurate? A)
| Beta is not a component of the Sharpe ratio. |
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B)
| The denominator of the Sharpe ratio is standard deviation which is comprised partly of systematic risk called beta. |
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C)
| The measure of risk used in the denominator of the Sharpe ratio is standard deviation also known as unsystematic risk. |
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The equation for the Sharpe ratio = (RP − RF) / σP.The Sharpe ratio contains standard deviation in the denominator of the equation which is total risk and is comprised of both systematic risk called beta and unsystematic risk thus the Sharpe ratio does contain a component of beta.
作者: ikoreaii 时间: 2012-3-24 14:05
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: A)
| strayed from their stated style. |
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B)
| statistically significant excess returns. |
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C)
| substantial excess returns. |
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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 outside the confidence interval, we conclude that the manager has generated statistically significant excess returns.
作者: ikoreaii 时间: 2012-3-24 14:06
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? A)
| 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. |
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B)
| The null hypothesis states that the expected value-added return is the risk free rate of return. |
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C)
| Value-added returns are independent and normally distributed. |
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The null hypothesis states that the expected value-added return is zero. We are testing the manager’s ability to generate positive expected value added returns. We want a consistent process to ensure that the distribution of value added returns about their mean is constant. We do indeed assume that value-added returns are independent and normally distributed.
作者: ikoreaii 时间: 2012-3-24 14:06
Which of the following is NOT a conclusion that could be derived from plotting a manager's value-added returns relative to the benchmark on a quality control chart? A)
| The chart can be used to determine whether or not the potential superior performance is statistically significant. |
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B)
| If returns are consistently above the horizontal axis this would indicate superior performance on the part of the manager under review. |
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C)
| If value added returns are distributed randomly around the horizontal axis then manager’s added value returns are more or less random. |
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In order to determine statistical significance or otherwise, confidence intervals need to be constructed using the standard deviation of the returns. Simply looking at the manager's value added returns above horizontal line alone does not tell you if the returns are significant or random.
作者: ikoreaii 时间: 2012-3-24 14:06
Which of the following would NOT be a feature of a well formulated manager continuation policy? A)
| Decisions to replace managers should always be taken on a clear cost benefit analysis basis. |
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B)
| Underperformance, in any circumstances, will lead to automatic replacement of the manager. |
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C)
| A formalized, written manager continuation policy including goals and guidelines. |
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Short periods of underperformance should not necessarily lead to automatic replacement of the manager. Underperformance for consecutive review periods should put the plan sponsor on notice of a potential problem.
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